Big Picture

Our overall Primary Trend Indicator remains Negative.  Investors search for "yield at any cost" is being driven by multiple negative factors such as weakened trade, tariffs, slowing global economic growth, currency devaluations and elevated short term interest rates.  Bond Markets are getting all the money flow with Gold and Silver catching some of it.  Equities could be due for a short term rally as bond yields are very overbought short term.   But longer term, investors are focused on trade negotiations between US/China and a looming Brexit on Oct 31, Halloween!

Changing Fundamentals

 

Wednesday:

The U.S. Federal Reserve releases the minutes of its last meeting

Thursday:

Advance August PMI readings due

Friday:

Jackson Hole economics conference, Fed Chairman Jerome Powell speaks

Focus List

 

Global stock markets rebounded on Friday on optimism the ECB and Germany will form new stimulus measures to keep the struggling economy going.  Despite some equities looking attractive the macro concern is giving investors a reason to pause and not so aggressively buy the dip.  We have noted to our subscribers over the past 10 days that Sebright Capital data is showing a weakening globally economy with rising geopolitical tensions and deteriorating investor sentiment.

This morning, DOW30 stock futures are gaining ground as bond yields rise and the Japanese Yen softens.   A rise in the value of the Japanese Yen is a tell-tail sign that equities are risk-off.  The Yen/USD carry trade was a strong force in much of the last 5 years of stock market activity, a weak yen would allow margin investors to borrow against $USD and invest back into $US equities – earning more on capital gains than the interest charges paid on the margin.  This force is beginning to unravel now, and could be a cause of shifting dynamics in markets recently as investments are sold and carry trades are covered.

Investors should remain defensive while anticipating stock specific opportunities.   M&A activity is still strong with cheap monetary policy and investor demand for syndicated deal flow of corporate debt.  The IPO market is holding steady and valuations will be tested soon as companies like WeWork and Saudi Aramco going public.  Bond Markets are currently overbought but with stock markets breaking down, systemic risk factors have investors searching for safety while risk assets get sold off.   Gold and Silver prices are moving higher on continued currency devaluation across major economies, the price trends are short term overbought and susceptible to investors selling to lock in gains, but longer term trends are positive and investors should look for entry points on eventual pullbacks in gold and silver stocks.

 

Traders Focus:

Semiconductor stocks – Chip stock should have a positive day and present opportunity for day traders on the Reuters report that Trump Administration looking to extend Huawei business license for a further 90 days.  Spotlight on high-performance chips:  The Hot Chips conference runs next week from August 19-21 deep in the heart of Silicon Valley.  Talks are scheduled from Advanced Micro Devices $AMD, Taiwan Semiconductor $TSM, Intel $INTC, Nvidia $NVDA and Xilinx $XLNX.  Bank of America Merrill Lynch thinks the sector could get a lift as the focus turns away from tariff turmoil toward the tremendous innovation going on with processor AI/graphics.

  • Keynote 1: “Delivering the Future of High-Performance Computing with System, Software and Silicon Co-Optimization” by Dr. Lisa Su, CEO, $AMD Monday Aug 19 at 1:45pm

 

 

Featured Stock:

Exelixis, Inc. $EXEL – The company is an advanced stage biotechnology company focusing on cancer oncology, with treatments targeting advancing clinical programs and establishing commercial product franchises.  Exelixis’ flagship molecule, cabozantinib, is marketed by Exelixis in the United States.  Exelixis’ third product, COTELLIC®, a formulation of cobimetinib, is marketed under a collaboration with Genentech, a member of the Roche Group.

Option volume was 9X normal on Friday with 33,113 contracts with call volume making up 89% and put volume at 11%.  The stock has been under the radar recently as a takeover target in the cancer oncology sector.  The company already produces revenues, has multiple late stage phase 3 products on cue for FDA approval decisions in the near term.  As well, the company is fully funded with $1B+ in cash equivalents.

Web Chatter spiked on Friday as the stock continued to move higher throughout the day as Call options where being added at multiple strike prices.  8 million shares traded hands during the day, 3 X’s average daily volume.   We see many positives on our factor list the Exelixis checks, investors could be adding shares or forming an options strategy.