Rebel Traders 077 : The Santa Rally?

Are we going to get one or are we going to get a lump of coal?

A question I have been getting a lot the last few days is "Do you think there's going to be a Santa Rally?"

First, what exactly is a Santa Rally?

We usually get a “Santa Rally” in the last week of December and the first couple of days in to January.

In fact, 35 of the last 45 holiday seasons have seen on average 1.4% gains during that time frame.

Many consider the Santa Claus rally to be a result of people buying stocks in anticipation of the rise in stock prices during the month of January, otherwise known as the January effect.

However, with all the recent turmoil there's a lot of mud in the water. Just this week we had:

1. The DOW losing 700 points in a day on Tuesday
2. No trading on Wednesday due to George H.W. Bushes funeral and an unscheduled state holiday that closed down the markets for a day
3. Inverted yield curves raising red flags for a possible recession
4. $140B wiped of FAANG stocks
5. Temporary China Trade Tariff Truce… (Try saying that 5 times)

Bottom line, there’s a hell of a lot going on!

So, with all the recent turmoil in the markets we're going to pick the numbers apart in this weeks Rebel Traders podcast and see what the hell is really going on.

Whether you have been naughty, or if you been nice we break it all down and see if we may or may not get that Santa Rally.

Time Stamped Show Notes

Read Full Transcript

Sean Donahoe: Have you been naughty, have you been nice? And are we going to get that Santa rally? You ready? Let's do it.
Automated: Rebel Traders takes you inside the world of two underground master traders, who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street and help you navigate the trading minefield. Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a rebel trader.
And now, here are your hosts, Sean Donahoe, and Mr. Phil Newton.
Sean Donahoe: Hey, hey, hey, this is Sean Donahoe, and we are rocking and rolling here this morning. Looking at the markets as everyone is in a flat panic after Tuesday's 700 point dip, and as always I am joined by Mr. Phil Newton. How you doing this morning, sir?
Phil Newton: I'm absolutely fabulous today, thank you.
Sean Donahoe: Does that make you ... I was going to say, what's the two characters name, Edith and I can't remember the other one. Joanna Lumley and Jennifer Saunders.
Phil Newton: Oh the ... absolutely fabulous, darling. Fabulous.
Sean Donahoe: Well good stuff. So okay, well I'm glad you are absolutely fabulous, you're fabulous every damn day. But yet today we are going to kind of be looking at if we are going to get the Santa Rally. Now usually the Santa Rally is ... occurs in the last week of December and the first couple of days of January. However, with all the recent turmoil, we've had a very sideways year with everything going on. These markets are a little bit crazy, so in today's show we're going to kind of pick through the numbers, look through the charts, and see what the hell is really going on.
Phil Newton: And we've also got our favorite section, I love this section, I love going through the Trade Fade or Evade sections, just so that we can ... let's we chew the fats about the markets, and kind of put into practice what we're always talking about, which is to develop a production line process that we lovingly call Trade Fade or Evade.
Sean Donahoe: Awesome. So okay, let's jump right into it. Now, again, we're recording this on the morning of Wednesday 5th, and this is after Tuesday's 700 point Dow dip in a day. And we've got a lot going on, we've got inverted yield curves, we've got 140 billion dollars wiped off of Fang stocks. We've got a temporary China trade tariff truce. Try to say that three damn times. That's a hell of a lot going on.
So there's a lot of people ... a little bit of a sphincter tightening situation here. A lot of panic and everything else in the air. And the first thing I'm going to have to quote a British sitcom based on World War II, and yeah, another one. And I'm going to have to say, "Don't panic! Don't panic."
Phil Newton: Does that make me Captain Mainwaring?
Sean Donahoe: I don't know if that makes you Captain Mainwaring, or I guess ... my old man used to call me Frazier. Which is not the American sitcom of the same name, but there was a character from that which was this old Scottish guy who's like, "We're all doomed! Doomed!"
Phil Newton: So-
Sean Donahoe: I can't quite ... I don't have quite his accent, even though ... but he's very deep Scottish.
Phil Newton: But it's like the naysayers are out again. All right, I know, one day sell offs in that sort of magnitude, yeah they ... it's shittifying to say the least. But I mean just looking at the last three months, just really kind of ... nothing's changed.
Sean Donahoe: No.
Phil Newton: Nothing has changed. And to be fair, prices jumped higher, everyone was happy when it went the other way. But now that it's kind of back to where it was on Friday and then a little bit more, it's really just been the middle of that range for the last three months. It's not really ... if I was looking for a trade right now, I'd be saying, "It's in the middle of the rain, it's not really doing anything, it's not at a great location, it's nothing to get excited about, it's just meh." So the fact that it got there quite quickly, that's ... I think it's, as always, it's the speed of movement that makes people panic, not necessarily the movement itself. I mean, this was going to happen anyway. It's just that the news speeded up the fact that it happened in the first place. That's always my view with these types of movements. We're not breaking any new grounds. I mean, why panic? It's ... I think we're going to see a ... you know, we keep talking about Santa rallies, I think we ... from the S&P's viewpoint, I'm looking at the S futures, I think we would have to see a move above 28-25 for it to be in the contention for a Santa rally. Because then that gives us lots of free space up to the sort of ... the year's high, the 29-25, 29-50 type of zone.
Again, we're just not there. We're literally not there.
Sean Donahoe: No.
Phil Newton: You know, the frustrating scenario that we were talking about just the other week is that meandering sideways. Right now, that's the most likely scenario. I mean, we got close to are we going to break new lows? Just as recent as last week, and that had me nervously ready to either get shorts and close longs. It's just meh, it's just not doing anything. It's just up a day, down a day, but I think, again, it comes down to that magnitude of movement and the speed of movement. It's all happening in one day, and these types of moves, they would normally happen over several days or several weeks. And it's on the back of what really is ... it's news driven, these moves, but it's not really big news as far as I'm concerned. It's not market changing, it's not going to change the sentiments so that all the money flow goes in one direction or the other, it's knee jerk reactions.
Sean Donahoe: Yeah, absolutely. So before we get into ... I've got quite a few different things I want to talk about with the current state of the market. But before we do, we keep mentioning this phrase, "Santa rally" so I want to kind of define a little deeper what that is.
Now, basically this is a seasonal kind of event that has occurred multiple times. It'll be 35 out of the last 45 holiday seasons, this has ... it's been positive between the last trading week and the period between Christmas and New Year, and the first couple of days of January.
Phil Newton: So now when we talk about 45, we're talking about the last 45 years, just to-
Sean Donahoe: Yes, yes.
Phil Newton: Put that into context. So it's not 45 days or 45 weeks. We're looking at December, the last 45 years, and 35 of those 45-
Sean Donahoe: Yeah, the last 45 holiday seasons, yeah. Yeah, yeah, it's .
Phil Newton: So we've got a good seasonal/cyclical sample to say, "You know what, this is a regular reoccurring pattern," hence, why we've got the phrase in the first place. So it's an expected thing.
Sean Donahoe: Yeah. Now many people consider the Santa rally to be a result of well basically people buying stocks in anticipation of a rise in stock prices during the month of January. So this is the January effect, as it's called.
Phil Newton: Yeah.
Sean Donahoe: I think it was Barons that did this and said on average, during that period, during a Santa rally, the markets gain about 1.4% or something like that. On average. If there is a Santa rally. So that's why people look at it.
Now, me personally, I don't trade during that period, I don't mess around during that because between Christmas and New Year, I take a week off. Everything shut down, all of my businesses shut down, I give all my staff across all my different businesses that entire-
Phil Newton: Off the top of my head.
Sean Donahoe: Yeah, good luck.
Phil Newton: Well done. You send them in, let them fend for themselves for a week. You know, you've got to forage in the woods. .
Sean Donahoe: Yeah, that's it. That's it, yeah. No, I give everyone that week off and that's it. I mean, that's an obligatory holiday for everybody. Even my different teams all over the world, in different countries, it's like no, everything's shut down so you have to take time off, that's it, done.
But so yeah, usually during that period as well, I stop trading, I don't trade. If I've got an positions that I need to manage in advance, but I'm like, , okay, that's closed. Start juggling with a new slate if needed. It doesn't matter, but yeah, during that period I don't really bother.
But a lot of people have been talking about the Santa rally, are we going to get one? So I wanted to dive into, first of all, now that we've defined that, what are the conditions in the markets right now that would either precipitate or kind of make you move away from the possibilities of a Santa rally.
Now yesterday-
Phil Newton: I'd like to-
Sean Donahoe: Go ahead.
Phil Newton: I'd like to ... now I've just got to interject, I'd like to consider what ... I know it's like that, but last week, I would say that the whole month of December would have to be a rally, personally.
Sean Donahoe: Yes.
Phil Newton: For there to be a positive ... rather than just one. It's like if snow falls on a particular post code, or zip code on a particular day then it's a white Christmas. No, no, it's not. Like one day doesn't make a white Christmas.
Sean Donahoe: No.
Phil Newton: It's that type of thing, that's what people call it a Santa ... and this is ... for me this is what makes it a little bit of a farce. Like for one week of the year it's got to be that positive move for it to be a Santa rally. Like a rally for me is multiple days, multiple weeks-
Sean Donahoe: Yes.
Phil Newton: Maybe even multiple months. So the fact that we're in a sideways range now suggests that, until something new happens, the same thing's always going to continue to happen. We're in a range, but because of that one week, very, very short term, as long as it's high and then it opens, it's a Santa rally. I don't think that's good enough for me. I don't think that's good enough for most people. But-
Sean Donahoe: I agree.
Phil Newton: It gives the talking heads something to talk about. It's a Santa rally, no it's not, it's just like a half percentage point higher than it opened. I think if we start to see multiple percentage points in that week, like four or five percents, I'll hold them. We saw that yesterday. In one day, three, four, five percent move.
And I think given the current volatility, we could see a big one day move. And people are going to be shouting, "We've got a Santa rally." And it's probably not, because in context of what is happening for the last six, seven weeks, anywhere from one to four percent seems kind of normal, even for a one day move. So it wouldn't be in context in that situation. And I think having to have that at the back of your mind as to whether we would or we wouldn't see a Santa rally in the context of what we're seeing right now, that small positive movement's not going to be significant in my mind.
Sean Donahoe: No, I agree with you. Here's the thing, you've got to have that overall sentiment going through this period, and like you said, the conditionals, the filtering, the specifics that a lot of people define as the Santa rally is ... it's like they have to put the rule set in place to officially be called a Santa rally. By who? By who? Bullocks.
Phil Newton: Yeah. It was up X percent, or ... don't get me wrong, I know we're bashing this, but I do believe that in seasonality, I do believe in cycles, otherwise we wouldn't do what we do with charts and a technical analysis. We've all got our preferences for how we apply cycles, and seasonality, and whatever else we want to call it. Otherwise known as charting or technical analysis. And the same thing's happened with fundamentals. Cycles and seasonality happens. And history repeats itself is another way of saying the same thing.
But I think you've got to ... you've got to take that context of what's happening. Nothing's really happening, but we're seeing very volatile, one day movements. So it's a very wide swinging market in a very short span of time. In fact, we've got a lot of volatile price movements, although we've not got volatility in the same way ... you know what I'm saying, eh, Sean.
Sean Donahoe: Yeah.
Phil Newton: It's like we've got wide swinging moves, but if we saw a 4% move in ... that's going to be called a Santa rally, but if it doesn't go above 28 ... what did we say, 28, 25ish, just approximately-
Sean Donahoe: Yeah.
Phil Newton: It's probably not going to be a rally, because it's not doing anything new. It goes above that level, and then carries on going high, then yeah, I'd probably be saying, "Yeah, we're going to see a Santa rally." I think we're going to see a snowman melt. A winter melting. It's just nothing ... it's flatter than a pancake.
Sean Donahoe: It really is. But let's get into what happened yesterday. Now, here's the thing, this is why the big move happened, it's one of the reasons, okay, outside of the flat panic that triggered it. But one of the things was we had what's called a yield curve inversion on Monday. And basically, short term interest rates were trading above long term rates. Now what happened here is this is considered a pre-recession event. And this, when they saw this, it's okay, the yield curves are so flat, and they actually inverted, that itself is considered a bad sign. And it is tending to be a bad hand. It really is one of the things that we're looking for for ... it's one of those check marks, okay, we're heading towards bearish territory.
So what happens, on Tuesday morning, the yield on the benchmark two year treasure note hovered above 2.821%. And the yield on the five year note was actually 2.811, so it's only just marginally inverted. But that was enough to cause a lot of people to start panicking. And my gut is telling me that a lot of this panic initial move was caused by algorithms. Because I know a lot of black boxes, a lot of proprietary systems look for these type of events, and I put that in air quotes, to trigger different reactions to trading.
Now when you start getting something like that that causes a cascade, people are seeing a giant move and then everyone's talking about yield curves and seeing a giant move, that then creates a ripple effect, a cascade, where everyone's suddenly getting into a short position, or something's going on, we better shore up real quick, and then boom-
Phil Newton: Knee jerk reaction, yeah.
Sean Donahoe: Total knee jerk reaction.
Now, here's the good thing from my perspective. This will also stay the fed's hand on further interest rate hikes. This is, again, because we have not been as ... I mean, they've telegraphed right from the start of the year that they're going to raise rates, raise rates because we're so ... the economy was doing so well. Well we know from the beginning of this year to now, has been pretty much a sideways market. So by that happening, I think that's going to put ... and with a inverted yield curve, or a really flat yield curve, it's really going to have the fed's saying, "You know what, we might second ... put second thoughts on raising those interest rates." Well from that perspective, that's a good thing. But I really do feel that a lot of this is quite possibly algo triggered. I mean, that's my gut telling me, just with the ... like Phil was saying about the speed of movement, momentum, I think it was a trip wire, circuit break or something. What do you think?
Phil Newton: Yeah, a very short term circuit break, I wouldn't say ... I still think we've got the panic circuit break, the panic button circuit break it should be said, below the year's low. So it's around about 2600 on the S&P. So yeah, I think intro day I think lots of algos were triggered. I think the other thing as well on Monday we had, because of the tariff news stuff, we had a very large gap higher, and we've not seen a big gap over the weekend, or after the weekend, for such a long period of time. It actually put me in mind of-
Sean Donahoe: I think it was March was the last one.
Phil Newton: Yeah.
Sean Donahoe: The last one I saw.
Phil Newton: I mean, we saw it ... we used to see them a heck of a lot around 2003, four, five, six, all the way ... because the movements were ... we would see lots of new things happening that justified slowing, so I've seen it before, but it was ... again, maybe a panic reaction. A positive thing because obviously looking back with a little bit of hindsight, it would've been great if we could've seen that 28-25 busted, but we didn't, and just taking our own philosophy, your price is in a range, it's at the upper end of the range, nothing new is happening, it's really no surprise that prices started to sell off from that level, because hey, this is the philosophy that we keep, the framework that we keep evaluating opportunities. And whether it's individual stock, or currency, or the index, or the market as a whole, it's the same philosophy. Nothing new is happening, we're right at our logical stopping points. Until it goes above that level, then it's going to keep doing what it was always doing, but that circuit breaker is the news just kind of triggered ... you know, everyone kind of switched on the program trades, as it were, because no matter where I was looking, kind of the headlines and some of the people that I follow, they were all saying, "I'm looking for shorts," all this positive news was just screaming do the opposite-
Sean Donahoe: Yes.
Phil Newton: For the people with money the market. It's just such a surprise. Is it really a surprise, because it's what we keep talking about? Whatever the headlines are saying, do the opposite.
Sean Donahoe: I know.
Phil Newton: It's just ... but yeah, I think everyone just kind of switched on the bear hats, because hey, the markets justified it. It's just a ... I don't know, I just ... can you make sense of these markets? But I think the ... I'm struggling to articulate this, because I find, broadly speaking, the conditions at the moment very, very frustrating. We're up a day, down a day, which is nothing new, we've experience it before, but I just think that the magnitude and speed of movement is ... I think it's concerning. It really is concerning. We're up two, three, four percent, down two, three, four percent in a day on the broad indexes. And that's not healthy, that really isn't healthy, and that's sending ... it's not sending a positive sign or a negative sign as to where everyone's money should be. And that is creating uncertainty. And that, for me, is ... it's not a long term concern, but in the short term, it's just making everyone scratch their heads, mine included in fairness.
But it just makes everyone scratch their heads as to where should our money be? And all I really want for Christmas, Sean, all I want for Christmas.
Sean Donahoe: .
Phil Newton: All I want for Christmas is to pick a direction. I truly don't care which way it goes, as long as it doesn't crash, we don't see the runaway train type movement, I don't want to see two, three, four percent on a day. I just want to see normal service resume. That's all I want. Pick a direction, or go down, I don't care, but just slow, steady movements in one direction or the other. That's all I want to see develop.
And this up two, three, four percent, down two, three, four percent, that's not healthy. I know we'll get passed it, and as we keep saying, living through these things is always the frustrating part, and again, we've seen this before. Normal service will be resumed, just hurry up and get on with it. It's December, it's typically a quiet period of the year, why is it a quiet period, Sean? I'm glad you asked me that.
Sean Donahoe: This is the ultimate podcast where on person does both sides, that's great, no, go ahead.
Phil Newton: , the hedge funds, the banks, the institutions. And part of the way that they get paid is on bonuses, if they have a good week, month, quarter, year, they're going to get bonuses. So December, first, we have a shortened trading month because of the traditional vacations that go on around this. So the office is kind of skeleton crewed or closed for half the month at the very least. And maybe even the start of January. So all the bonuses, all the movements have kind of been locked in. So the people who can move and influence the market with an significant money moves, they're probably sat on the sidelines, around the water cooler, "I've got my bonus for the year, I don't want to really mess that up."
So most of the time, we don't see anyone moving and influencing the market who could move and influence the market because they don't need to move and influence the market, because their bonuses are secure, and they don't want to run the risk of giving that up. Again, this is just my weird conspiracy theory, and I've spoken to many kind of people who do work in those positions, and they go, "Yeah, that's exactly what happens." If you imagine the office, they're in the office, it's just the financial trading equivalents of ... wouldn't that be a great show, the finance trading version of The Office?
Sean Donahoe: That would be fantastic.
Phil Newton: That'd be hilarious. But that's what's going on. If you pitch that environment, they don't want to kind of give up their bonuses, they don't need to push the buttons, they're just kicking the can down the road until they can get passed the bonus dates, which is the end of the month, the end of the quarter, the end of the year. They don't want to give it back so they're only doing what they have to do, working client orders, maybe, but not really-
Sean Donahoe: maintenance mode, is what you're saying.
Phil Newton: Yeah, exactly. And what we're seeing here, is that's being translated into the markets. Up a day, down a day, you know, it's down a couple days, it's up a couple of days. Again, I think that the painful part is just ... I come back to saying the same thing, it's that speed, the size of movement and the velocity of movement is very fast, but very short lived. And again, this ranging movement, that's normally what we see in December. That's no surprise, it's just this particularly December it's a little bit more painful.
Sean Donahoe: No, I mean there's a lot of pain in right now. Short term, there is a lot of things going on. Long term, I'm not too worried about it, I really think we are going to be in a tip of a point very soon. We've been saying that for a while. I'm seeing a lot of red flags being raised here, a lot of the check boxes being ticked. I'm going to have to put on the bear suit very shortly. I'm at that tipping point. I mean, like I said, long term, I've actually liquidated a lot of my long term investments right now so that I'm holding onto cash until we get a little more, like Phil says, little more in the direction. And some of the stuff that, again, with companies ... you know, when you're in investing, you're looking five, 10, 15 years down the road. Okay? Even longer, 30 years, if you want to.
And I, with my investments, I kind of take a ... yeah, I take a Benjamin Graham kind of look, kind of like Buffett in that again, I'm buying good companies for the long term, what happens in the short term I really don't care about.
Phil Newton: It's all nice .
Sean Donahoe: Yeah. So a lot of that ... but in this short term with what we're seeing right now, after a nine year bull run, I just want to pick it up as cheaper. Because I still believe in the companies I was invested in, I just ... I'm just going to pick it up at a cheaper price. Like Amazon right now, I'm back in with Amazon. Because I know, I really, truly believe Amazon is going to be a long, long term, great company, and it already has proven to be.
Now, politically, I think Jeff ... and again, a lot of the other stuff that Bezos is involved in, I think he's got his issues, I'll be politically correct there, should I be specific. But I think the company is going to be around a long time, it's a mainstay. I, again, just picking it up at a discount, which locks in a whole lot of profit, gives me a quick win. I like that, that's all good. And then, again, reinvest that to pick up more.
Phil Newton: I think we'll see it bounce back. One thing I have just read as we're doing this, the markets are closed for in commemoration of-
Sean Donahoe: George W.
Phil Newton: Yep.
Sean Donahoe: Or George H.W. George H.W. I just want to be very specific. Herbert Walker Bush.
Phil Newton: Yes. Because the filthy foreigner got it wrong. Is that what you're trying to say?
Sean Donahoe: No, I-
Phil Newton: me.
Sean Donahoe: Yeah, I just wanted to be very clear. But, yeah.
Phil Newton: George H.W. Bush, yes. So the markets are closed for the moment, and I'm sure ... my conspiracy theorist mind, when it comes to the markets, is thinking because that ... it was a known that was going to happen if you were kind of just passively skimming the headlines. So maybe the markets knew that it was going to provide an opportunity because the markets are closed, again unexpectedly, it's not a regular thing.
Sean Donahoe: It's not a scheduled closure, yes.
Phil Newton: Yeah, it's not a regular, every year type of thing, and my he rest in peace and all the rest of it. But again, my conspiracy theorist mind goes to there's going to be a pressure valve building up. All the orders that would've gone through today are building up. There's going to be a backlog of work. Imagine it like the, I don't know, let's just say like the postal workers have gone on strike, for example. Imagine a situation like that somewhere in the world, maybe even close to home, where the postal workers have gone on strike. They've gone on strike for a day, and although the postal letters have ... they've got a backlog, they've still got to be delivered. It's the same thing with the stock market. Those orders are still going to come through, they're just not going to get processed today.
So that's going to create a pop, if you like. So maybe the markets were short term manipulated, those algos that you were speculating, and this is my conspiracy theory, Sean. It's just-
Sean Donahoe: He's got his tinfoil hat on, ladies and gents, but go ahead.
Phil Newton: Well I'm just trying to find the narrative that kind of fits the situation as to why these things might happen. Because the market's going to be closed today, and we're expecting a Santa rally, which is as we go into December, that's on everyone's minds. The markets get pushed in one direction, a little bit of news ... what most people would expect as positive news to help allow the ability to push the market around, which is what we saw yesterday, which triggers a few circuit breakers, because we saw such a monumental movement yesterday. The markets are going to be closed today, there's going to be backlog of orders, and they've got to go somewhere. Maybe it's people getting ready for the Santa rally, start piling in because that's what we've seen for the last several days over the weekend, as we went into December, and the media, the talking heads, are doing everyone's job for them. "I'm going to buy some stock to get into the Santa rally," because it happens 35 out of the last 45. "I want a piece of that." That's what the layman's doing. And those orders are building up, building up, building up. Whereas the selloff yesterday allowed the people who maybe do have some money to move and influence the market, at least in the short term, are filling their boots.
So I think Thursday we'll find out, as this drops in real time, whether we're going to see a similarly large rally on Thursday. And now I've said that it's going to go in the exact opposite direction. But that's what I think. But that's my conspiracy theory. It's like, there's no reason why this is a justified move down, and the magnitude, there's nothing really driving it. The news that was out was, for all intents and purposes, positive. And we've got basically a big box of money flow to kind of come into the markets on Thursday as the markets reopen. So maybe, maybe we see a pop in one direction or the other.
Sean Donahoe: I think we are going-
Phil Newton: I'm just trying to put a narrative, even with the tinfoil hats, so that we maybe see something, I don't know.
Sean Donahoe: Absolutely.
Phil Newton: Interesting to see what happens.
Sean Donahoe: Yeah, I mean-
Phil Newton: I'm usually right. Guess what, Sean? We've got the stats to prove it, we're right 65% of the time. Even despite the tinfoil hat scenario, I'm right on average 65% of the time. There's a good chance that that's going to happen.
Sean Donahoe: Well I actually agree with you on that. Not so much ... I don't know about the conspiracy side, but just in terms of momentum. If you look at the ... like last night's future rollover, again, from that big move down, there's a move up, and that usually is what's happening in the futures market continues when the markets open. And I think, again, that pressure and backlog will continue that futures flow, because at the end of the day, again, there's that pressure behind it, all that kickback. And oftentimes with a big move down, there's a little bit of a bounce, and that's why I do think that that is a valid thing.
Because, I mean, here's the thing. The FANG stocks yesterday that we talk about a lot, lost 140 billion, like I mentioned earlier on. But we've also had a couple of interesting downgrades over the-
Phil Newton: Said in Dr. Evil style, 140 ... the finger in the corner of the mouth. 140 billion dollars.
Sean Donahoe: Which, no, it sounds like a lot, but it's a quick it.
Phil Newton: It's a drop in the ocean for these markets.
Sean Donahoe: Yeah, it's again, short term, great headline type stuff. But, one thing that has been interesting is Apple has been downgraded by HSBC, who said the iPhone maker is facing the reality of market saturation, that was their reason for the downgrade. Now, that's interesting. Apple being downgraded is a big frickin' deal, okay? One of the largest companies out there, but like we've been saying, and I always make the joke that the latest iPhone is the best phone that Samsung ever made. But at the end of the day, joking aside, is the iPhone and the market is saturated between Google's offerings, Samsung's offerings, every other offering, it's a saturated market.
Phil Newton: My conspiracy theory helmet, tinfoil helmet is firmly entrenched on my head. I'd be asking myself, was it just one bank, one analyst, HSBC downgrading? Because if there's no one else doing it, all that means to me is that the press officer as had an argument with the HSBC office, analyst, that's what that tells me. Someone didn't pick up the check, and he's wrote a bad report.
If it's one downgrade, it's a kind of screw you type of argument, someone didn't pick up the check over lunch.
Sean Donahoe: That's funny. That is funny. No, I think it might've actually had a couple of-
Phil Newton: That's how much value I put on like FANGs upgrading and downgrading, it doesn't mean jack.
Sean Donahoe: Yeah, well I think they actually have been downgraded by a couple of other people as well. But at the end of the day-
Phil Newton: Tinfoil helmet's on, Sean, I've just got to warn you the crazy ideas are coming out the closet today.
Sean Donahoe: That's funny. Yeah, I mean, Goldman Sachs downgraded them recently. Looking at that, there's a lot of pressure there, but I think, hey, that does happen, what Phil was saying, was where there's a little dispute.
Phil Newton:
Sean Donahoe: Yeah, let's just knock ... let's knock 2% of your stock value right there, how about that? Flip them the bird.
Phil Newton: Let's see who picks up lunch next time.
Sean Donahoe: Yeah, there you go. But the other thing is, it-
Phil Newton: Conspiracy theories aside, it does happen. I think the thing you've got to keep in mind-
Sean Donahoe: It's a game.
Phil Newton: Is it's people. It's people. It is a game to these people. It's Monopoly money. It really is Monopoly money. And I don't know, it just makes me laugh. Again, I know I am kind of throwing the ... kind of the tinfoil helmets idea in the mixing pots, but it does happen, I've heard it too many times. To not even like ... just to consider it as possibility, I've just heard it too many times, similar things over the years. I mean, there's some interesting war stories that when you get talking to the people behind the scenes and you get the real story, as opposed to what the official memo said, it's kind of interesting, some of the stories that you do hear from time to time.
Sean Donahoe: Absolutely. Now the other thing is in terms of downgrades, because ladies and gents, I keep an eye on the tech side of things a lot, that's kind of my baby. Intel shares also got a real swift kick in the gonads after they got downgraded as well. Because again, Intel being a giant company, and it was ... it takes a long time to turn that ship. They are not adaptable to their environment, and the demands placed on them, so it takes them a while to go through, so they got downgraded as well. So there's a lot of that going on, a lot of just ... yeah, twists and turns that just need to be looked at, and evaluated, and then played onward.
So yeah, there's a lot going on. And the other thing is, and this is something I saw yesterday, just again, skimming the news headlines and seeing what other people are panicking about and what they're going through, but I laughed at this one. "Utility stocks soar to their highest levels in years, and some analysts are suggesting that they are safe havens." Do this with me, Phil. Go and look at XLU, the ETF-
Phil Newton: I've just because you know I like to get my first impression when we look at stocks. So the headline is, "Utility stocks soar to highest level in years"?
Sean Donahoe: Yes. And I'm looking at XLU, and as of ... utilities as a flight to safety. And hashtag WTF.
Phil Newton: It's like, well, yeah ... it's, all right, maybe some of the individuals stocks have bought the kind of the index that represents it, which is the ... it's doing this ... it's not doing anything significant in the last two years, other than retest the two year high, let alone break to new highs.
Sean Donahoe: It's been trending up since the beginning of the year, but that's it. But it's not like it's a significant. It's gone from $49.00 on average, to $56.00. That's not-
Phil Newton: I've got to admit, it's been a strange rally.
Sean Donahoe: Yes.
Phil Newton: For most of this year. So we saw the big selloff, just like we did with the main indexes, but it's been a struggling, strained rally. As I'm reading the charts, just to keep it nice and simple for the poor farm boy, while there's lots of consecutive green candles, the rallies are struggling, the green candles are short, and they're small in height, but the red candles, there's few of them, but they're big red candles. So the downward movements have more significance and more momentum than the struggling upward movements. That really is a picture ... this is such a good example, a picture of momentum, if you look at the selloff at the beginning of the year, you've got the very clear, strong trending downward move, but you've got this very struggling, there's no money flow, there's no buying, there's no significant upward movement. There's no consecutive , consecutive upward movements with the length in candles to suggest there's new buyers. Volume looks weak. It really is a struggling rally.
And ... when you just ... and all we've really done, Sean, is state what the obvious. We've said what we saw, rather than put an opinion. So yeah, it's a slightly biased opinion because we're looking to kind of dispel the headline, but just saying what we see, it's a struggling rally, I would be hard pressed to say that it's a flight to safety. It doesn't look like anyone's going there. We've got decreasing volume on the last two to three weeks, which suggests that there's no buyers going in there. And I really have difficulty agreeing with that statement.
Sean Donahoe: Yeah, have a look now, just flip it around, let's look at ... kind of circle back around to the Santa rally. While we've got the charts up, let's go to XRT, the retail sector. Now the green, this is the retail ETF.
Phil Newton: XRT. Again, you would expect this time of year, you would expect in anticipation of favorable sales, Buck Friday, Cyber Monday, and all the holiday things, you'd expect to see, I've not got the chart up yet, but you'd expect to see what most people expect to see, which is positive movements on the run up in anticipation of a good month's worth of retail sales. That's what you would expect to see. Would that be a fair generalization?
Sean Donahoe: That would be a fair generalization.
Phil Newton: Okay, what are we looking at, XRT, so let's look at XRT, are we going to see this? No. it's just down, down, down. Red candle, red bar, red bar.
Sean Donahoe: Yes. So here's the thing. We should buy a bar and call it the Red Bar. I actually like that. I like that.
Phil Newton: The Red Bar. For every trader that's had a bad day, come and join us at the Red Bar.
Sean Donahoe: I will do that, I will do that right off of Wall Street so everyone is coming out from the pits and from the offices that day, right at the end of the street there's the Red Bar. That's it, I like that. I'm going to have to do that. Oh, that's actually a genius idea.
Phil Newton: But that's the narrative that the talking head feed into. December, retail sales, it's all going to be great. And this, again, for me, Sean, this reinforces why we shouldn't look at the news headlines, because it's typically well behind the actual story, as opposed to the NAT that the talking heads are often talking about. Because they're just maybe repeating second, third, fourth, fifth hand. And the evidence is in front of us, in front of the charts. We've got ... this, for me, if we're looking at retail sales, paint the picture. What does the last, since September, it's been down, down, down. Lower highs, lower lows. We've got a very short term downward trend in the last three ... since September.
This to me says that we've got weak sales, broadly speaking. We might have some individual pockets of good, but the sales have been weak compared to the typical buying season, because this is the biggest buying season of the year. We're not going to see that, there's not a lot of positive expectation for greater buying forecasts, from forecast to actual results. We're just not seeing it, and it's all in price, that's how I would interpret the charts. If I was going to say anything, I would say that the end of December, there's going to he headlines that start to start the facts rather than the expectation, which is the Christmas sales haven't been as good as what we thought. We've already seen that with the Cyber Friday, and the Black Monday. Or whichever way around it is.
But you know, but we've already seen that. They've not been as good again, reducing sales. And again, this is the picture that's painted on price on the charts, and I don't need to know what the headlines are. I can fill in the blanks based on what price action's doing, because that's the reality. Whereas I'm more interested in the reality of what price is doing, versus what the talking heads are saying should be happening, what they're expecting to happen. Because they're just ... they're painting a narrative.
Sean Donahoe: Yeah, now, this again, looking general, the ETF definitely gives you a broad sector overlook. And again, there's a lot of analysts that are concerned that retail numbers may be bad, and again, looking at the same kind of chart. However, here's the thing, I think we are actually going to see some very interesting stories coming out of this, because a lot of Halloween reported sales have seen a significant spike in proportional consumer spending.
So while the initial retail numbers for Q4 are looking-
Phil Newton: Well, just back up, back up, back up a second, Sean. I appreciate your quote in there, but isn't that normally what happens at that time of year? So they've seen a spike, but compared to previous years it might be lower?
Sean Donahoe: Year on year, year on year. Year on year is actually higher than it's been ... we've seen a significant spike in comparative.
Phil Newton: Now that makes me ... that makes me sit up and pay attention, because rather than just a blanket statement of we saw a spike in sales, well that's what you'd expect around buying seasoned ... there was going to be a spike in sales, yeah, we know it's going to happen. But when you ... like we were saying earlier, in the context of previous sales, previous quarters, previous years, where does that fall? Is it consistently increasing? Is it an increase, is it bigger or smaller than what they expected? Put it in context, that gives it more umphf, and for me to take it more seriously.
Sean Donahoe: Yeah, I was actually speaking with someone who was ... they basically studied this, they always look at the retail sector. And they were saying that one of the things that they look at a lot is what's ... and it's usually a leading indicator of what's going to happen through Black Friday, Cyber Monday, and then overall the trend into the Christmas period, is they look at the Halloween numbers. Because if the average order value, or the amount that's being spent on average per sale scales and goes up, that means there's more people willing to spend, they've got more disposable income than in the retail sector, which is where they specifically trade, they look more into that as people are spending more comparatively on gifts and everything else, or whatever they're doing for the Christmas period, which thus can be more buoyant, and they've got correlations between that. Which makes a lot of sense, because when you consider that Q4 numbers are not going to be ... so for Black Friday, and actually what's encapsulated in Halloween as well, that's all fourth quarter. September 30th to the end of the year. So there's no official like numbers coming out as earning statements until the beginning of Q1 for Q4.
Phil Newton: Exactly, yeah.
Sean Donahoe: So you're not getting all of that reflected in, but when you start seeing it, and you're hearing people reporting yeah, we did really well during Halloween, or we're doing ... like Best Buy CEO was out recently saying that they track sales by the hour, by the minute, across all of their stores during Black Friday, and then if they see a spike there, that's usually a good indicator of what's going into Christmas. It was an interview that CMO was doing on Walter's business course.
Phil Newton: Just pause in there, that's absolutely mental, to be able to track that ... this technology stuff blows my mind, Sean. I think because we've seen it before and after. That before digital, but to be able to track sales in real time, and to make adjustments and that's pretty spectacular.
Sean Donahoe: Yes.
Phil Newton: I'm sorry, I'm just kind of marveling in the technological advancement more than anything, but that's impressive.
Sean Donahoe: It is, and they actually, and they can make adjustments on the fly across all their stores, including pricing trends, and they can adjust prices to be more attractive on what's going on through all their promotions and everything else, it's pretty outstanding.
And here's the thing, they're working on their Black Friday promotions as soon as Black ... next year's Black Friday promotions as soon as Black Friday's over. They actually spend an entire year doing that so they can anticipate, plan accordingly, because again, through that Black Friday all the way through Christmas is their absolute biggest time. And so it was actually amazing to listen to, but they were reporting that their initial numbers have way exceeded-
Phil Newton: Well here's the thing-
Sean Donahoe: Last year's.
Phil Newton: It's data driven.
Sean Donahoe: Absolutely. So yeah, that's why I pay attention, because that stuff really excites me, so while I think initially we're looking at the general markets, and looking at XRT as an overall of the retail sector, a lot of the big players, and this is where it gets interesting, the big players like Best Buy, like Amazon retail and everything else, they're not actually part of XRT, they're not part of this ETF. So you have to actually look at the components to then also make a judgment call over, okay, what is going on? So for individuals, if you're looking at the retail sector, a little pro tip, I guess, look at how their numbers kind of were reflected through October. Do a little digging if you want to get into the fundamentals, and then if they're reporting great Halloween sales, and they're seeing increases, that could be well be an indication that they got ship-
Phil Newton: A little hat tip to ... yeah.
Sean Donahoe: So-
Phil Newton: It's an interesting thing though, another reason for upgrading to a more robust charting platform, you can create your own index. I know people who do ... I can't be bothered, personally, I'm lazy as you well know, Sean. But you can create your own index, you just put all the stocks in your index, and you work out and apportion the multiplier, and it will create an index for you so you can have your own tracker that just gives you a gage of the pulse of the markets, so you don't have to have the 30 down stocks, you can have the 30 benchmarks stocks for a sector that you want included as your finger on the pulse for retail, or technology, or insert the area that you want to monitor. I think that's a useful trip to take. I have done it in the past, for what I was doing at the time it was an overkill, but I did know someone that swore by it, so they could put their own weightings on certain stocks over the default Dow, the Footsy 100, or the trend on European futures at the time. So what, the CAK or the DAX or whatever.
So you can put your own weighting on those types of things, and I think that makes it more interesting, because that's more relevant to what you're doing, versus what the broad market is.
Sean Donahoe: We actually have ... well, I've created it myself, the TC 400, which is the Trade Canyon 400, and that's kind of like what are the six on the back of my trading platform as well. Again, it's the-
Phil Newton: Nice. You got back to yourself, Sean. You get back to yourself. I'm coming out with this pearl of wisdom, and you're, "Well actually, Phil, I've already done that."
Sean Donahoe: Well, it's something I'm playing around with and keep on the back burner, so-
Phil Newton: I know.
Sean Donahoe: It's interesting to be able to do these kinds of things.
Phil Newton: I know what's involved, but it's going to be a work in progress because it's-
Sean Donahoe: It is a work in progress, it is, it is, but again-
Phil Newton: Which is one thing I gave up .
Sean Donahoe: Continuous work in progress. But there you go. I think that's where we are with the Santa rally, I think that's where things are going to flow with. I'm keeping an eye on the retail sector, accordingly, with individuals. But again, when you're looking at these ETFs, the caveat is look at what it's actually made up with, and is that really representative of the sector? Like I said, the XRT doesn't have companies like Best Buy, it doesn't have Amazon, which is retail. So it's kind of ... it's kind of interesting to see where the actual components flow, so raising awareness.
Phil Newton: I have ... my kind of poor man's version is I have, the various sectors, I have a half dozen stocks that I include in say resale to , just kind like my own version of the FANG, if you like, of the sector. And just keep an eye on those. And you can just look up and down say, "Oh, retail's up today." Just broadly buy kind of the ones that could simply lead and charge the way, just so you can kind of get a finger on the pulse of those. So if I want to look at the retail, or an individual sector, retail, that's kind of what I do, just so that I've got the ones that I know and are more likely to trade, so it's more relevant to me.
Because you don't want to go to the extent of creating your own index, which it can be very time consuming when you've got to work out weightings and all the rest of it, which is a pain in the bum. But just take a look at the top stocks that mean the most to you, and just are they up on the day, down on the day compared to the index, or either the sector or the main market. And just do a little comparison analysis. Is it up more or down less? Are they in line or are they outperforming or under performing? You can see that at a glance very quickly, and that's the extent that I go to, personally.
Sean Donahoe: Absolutely. So let's dive into Trade Fade or Evade here, and let's have a look at some individuals. And a little mix of everything, kind of falling in line with the Santa rally, we'll call it Retail Me In. So let's start with Best Buy. BY.
Phil Newton: I'm taking my own advice, I'm pausing trying to figure out what's going on, so I'm probably going to evade it. Over the last 12 months it's kind of meandering, if you just looked at the last six months it's sell to rally. So yeah, it's giving me mixed signals, but if I had to do something, it's looking good for a sell or rally.
Sean Donahoe: Okay, cool. I'm kind of ... I'm just going to evade that one for right now, even though I just told you what they are doing in tracking and everything else. Looking at the chart, not seeing it, I'm just going to evade it for now.
Phil Newton: Yeah, I can kind of see it. I can see it.
Sean Donahoe: Okay. Now next one-
Phil Newton: Or not, as the case may be.
Sean Donahoe: Walgreens Boots Alliance. Again, considering that the last one day panic, what would you do? I'm seeing a very -
Phil Newton: Buy and dip.
Sean Donahoe: By the dip and an uptrend there.
Phil Newton: What I like about this is, again, just looking back over the last 12 months, take my own advice, it's broken into new 12 month highs back in ... just a couple of weeks ago, actually. Just two, three weeks ago, so it's broken into new highs, and very definitive up trends for the last six to seven months. And this selloff might provide the opportunity to buy the dip, and then break to new highs. So this is very positive, breaking new ground type of territory. Yeah, that one day selloff would be doing you a favor, if anything, to-
Sean Donahoe: It's a nice discount, yeah.
Phil Newton: Get in a it looks like a good set up, so it's going to have to be buy.
Sean Donahoe: Yeah, same here. Okay, Dollar General. DG.
Phil Newton: Yes, Phil, you heard that right, I was ... nice little gap trade. It's in the last 12 months. If I was winging it, which is my usual thing-
Sean Donahoe: Up trend.
Phil Newton: I'd ... yeah, it's in an uptrend, again mixed the last sort of ... since September it's meandering sideways but at the lower end of the range. You know what, I can see the argument, it's not obvious, but I would be bullish on this.
Sean Donahoe: Yeah, I'd be bullish on this. Looking back to September of last year, it's been pretty much trending up, this is a nice dip in an uptrend, although, like you said, shortly, last few months it's been kind of sideways a little bit, it's not enough for me to say something new has really happened, looking at it in context. I'd be trading it.
Phil Newton: Yeah, I mean, it's not the best looking chart, it's ... if you were going to do something, it would be bullish. Yeah, I mean I can see the ... it's not obvious, doesn't meet the usual criteria-
Sean Donahoe: No.
Phil Newton: But I think that if you want it to be something, you could find a way to trade that. I've got a few ... again, I think it's because I have had a couple of trades out of it yesterday.
Sean Donahoe: Okay, GAP. GPS. Me, I would've ate this.
Phil Newton: it's a mess, isn't it? I like that, short and sweet, no hesitation there. It's a messy chance. Yeah, just step away from it. Again a good example if you wanted to look at it just so you can kind of see why we're ... it's up a day, down a day, the spikes on every other candle. It's not attractive, certainly when you compare it to some of the ... Walgreens, WBA that we just looked at. By comparison, you can start to see what a clean chart looks like versus a messy chart. So this is a good example of a messy chart, and one to be avoided.
Sean Donahoe: Okay. Next one, Big Lots. B-I-G. The Notorious B-I-G.
Phil Newton: You know what Sean, I knew you were going to go there. Evade, it's in the range, in the middle of the range, it's not at the upper or the lower end of the range to be able to trade in said range, it's evade.
Sean Donahoe: No hesitation, exactly the same. Okay next one. Nordstrom. G ... sorry, JWN. Which of course that actually makes complete sense for an acronym for Nordstrom is JWM, but there you go.
Phil Newton: Yes.
Sean Donahoe: What would you do here?
Phil Newton: Jewson, I would ask that we Jewson. Because I think it's JWN in the UK is a different-
Sean Donahoe: Yeah, that's kind of-
Phil Newton: I think it's actually a company called Jewson.
Sean Donahoe: Yeah, that's right, that's the-
Phil Newton: Building supplies.
Sean Donahoe: Home Depot type, Lowe's in the UK, I forgot that one, yeah.
Phil Newton: It's evade, I think for me.
Sean Donahoe: Evade, absolutely. No hesitation, same thing. Yeah, just move the hell on. Last one. BRL. Sorry, B-U-R-L. Burlington Coat Factory.
Phil Newton: It's just had the dip, so yeah, it looks good actually. Buy the dip in an uptrend, the actual trade would've been probably last week, this time last week sometime.
Sean Donahoe: Yeah.
Phil Newton: But yeah, retest the recent highs, this is a good example of what we're talking about actually, of the type of trade that we're looking for for our regular strategy. Buy the dip in an uptrend. We've got the usual signs of exhaust, they're right about $150.00 just ... let me get the exact date for you. So around about the 20th of November just for reference. So that would've been where the trade was, so this meets the usual criteria. Buy the dip in an uptrend, at a logical stopping point, and aiming for a retest of the recent highs, it's gone from $150.00, and you'd be aiming for the retests up towards 180. It's currently reached 170, so it's reached 80% of the move. This is a good example of the sort of thing that we would normally look for, and actually trade, so this has ... while not a today trade for me, this has trade me written all over it if you were looking at it in real time.
Sean Donahoe: Totally. Yeah, completely agree, I would be looking for a retest of those highs. I mean, the trade was a few days ago, but if I had to trade it today, I'd probably say while I'd be waiting for another dip, this is a solid trend up.
Phil Newton: I'd wait for it to break to a new high and look for the next ... you could trade the break to a new high, and sit through any potential future retracements, or wait for the break, trade the retracements. So you're looking for that next rally retracement type settle.
Sean Donahoe: So rock and roll.
Phil Newton: I'm going to put that on my watch list, it's highlighted a few times as good opportunities over this year, it's been a good trader, if I'm going to be honest, I quite like Burns.
Sean Donahoe: Awesome, awesome, awesome. Well there you go ladies and gents, that is it for this week's show, thank you for listening. Do appreciate it, but please remember, this show is not free. It takes a lot of time and effort to put this on, and it will cost you a five star review. Not that expensive. And if you go to
Phil Newton: Cheap at twice the price.
Sean Donahoe: Yeah, cheap at twice the price. Okay, yeah, there you go. So if you go to where you can subscribe, review us, on your favorite way to hear the show, and this helps us reach more traders just like you.
Phil Newton: Well I think I'd like to finish on a quote from one of my famous poets, Mr. Billy Connolly. "If I've enjoyed you half as much as you've enjoyed me, then I've enjoyed you twice as much as you've enjoyed me." What have we got coming up on next week's show, Sean?
Sean Donahoe: Well, next week we are going to do the red pill and the blue pill. We're going to play a little bit of-
Phil Newton: That's The Matrix.
Sean Donahoe: Yeah, we're going to be a little Morpheus and Neo here as we get towards the end of the year, kind of looking forward, looking back, looking around, and we're going to decide which version of reality we want to look at.
So with that being said, if you want to reach us, again, you can hit us up on Facebook at You can actually join the group there, we're always sharing interesting stuff, insights, and going on about what's going on in the market. And you could also hit us up, myself, Sean, at, Phil is [email protected] You'll get us one way or the other, that's the whole main thing.
Phil Newton: It's mail, yeah. And a post card. And some post cards.
Sean Donahoe: Yeah, send us a postcard,
Phil Newton: Remember the days?
Sean Donahoe: Yeah. Put your name on the back of a postcard, send it to this address. Okay, so with that being said, ladies and gents, we're going to rock on out of here, take care, see you next time.
Phil Newton: Bye for now.
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3 Key Takeaways From This Show

  • Don't panic - Follow the flow
  • Don't hawk the markets - If you're invested in great companies, this is a blip in the ocean
  • Flat or inverted yield curves are another red flag but nothing really new is happening

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