A very major political event happened with an alarmingly paucity of fanfare a couple of weeks ago.. That afternoon, the House of Representatives- by an overwhelming majority of 348 to 79- passed a bill which authorized the Department of Commerce to impose ‘duties’ on imported products from nations it deems as having “undervalued currencies.” The bill was broadly supported by both major political parties with Democrats portraying the matter as a jobs issue while Republicans framed the issue as one of fairness. Earlier this year, China indicated it’d allow its currency (yuan) to trade in a wider band against the dollar, but the yuan has barely appreciated since that time. Most experts widely acknowledge that the yuan is about 15%-25% undervalued against the dollar which makes Chinese goods cheaper in the U.S. and U.S. goods sold in China more expensive. Basically, I view it as a situation whereby because two wrongs don't make a right. China is seemingly wrong based on the yuan’s performance, but the U.S. retaliating so overtly with such political overtones will not go over well there. I am not saying we should lie back and take it, but making such a public stink about it could cause the Chinese to do things like raise tariffs on steel imports. Which would cause the U.S. to retaliate. And so forth. Indeed, in the last 24-36 hours, the Chinese raised their benchmark interest rate and very quietly began an embargo on rare earth metals to the United States. That doesn’t sound major until one considers many of these same metals are used in the manufacturing of products such as semiconductors. I have absolutely no idea how this situation will break, but with the Senate voting on the House bill later this year, Sino-U.S. relations could once again become a forefront issue for day traders as many rumor (or actual event as has occurred in the last day affecting U.S. trade can dramatically impact stock prices.
Markets were hit in Asia overnight with Tokyo down 1.6% and Hong Kong down 0.9%. Things actually perked up in Europe slightly with a lot of the damage having been done yesterday as the bourses are up either side of ¼%. Oil and gold are rebounding a bit- oil about 1% and gold about ½%. The dollar has renewed its decline with it approaching the 81 yen level and down almost a full euro. Futures are higher. Today will likely be very choppy with trading on both sides of unchanged. There has been a rebound in sectors like commodities but financials are almost universally lower. Oil inventories are out at 10:30AM with the Beige Book out at 2PM. Keep an eye on those commodity and financial stocks, the rare earth mineral plays, AMLN and the fallout from its drama, and the myriad of companies that have reported earnings.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
SHZ, REE, MCP- all rare metals stocks; all closed near their highs on the China embargo news
NVO- main beneficiary of the Byetta denial by the FDA
TWER- closed near a high
DEAR- good earnings
ALTR- decent earnings
SYK- decent earnings
SHAW, CTL- featured on last night’s “Mad Money”
ECA- decent earnings
ETN- decent earnings
BA- decent earnings
DAL- decent earnings
WFC- decent earnings
STJ- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
AMLN, ALKS, LLY- FDA again denied approval for Byetta
CREE- terrible earnings; VECO may move with it
JNPR- bad earnings
POT- Saskatchewan will announced decision to approve or deny BHP’s takeover bid on Thursday; the premier will do so and has been against the bid
FSII- earnings warning
ISRG- missed revenue estimates
RIG- closed near a low
CASH- closed near a low
WLP- closed near a low
FNSR- closed near a low after reporting terrible earnings
SVU- closed near a low after reporting terrible earnings
Earnings:
WED OCT 20 BEFORE
ABT AMB APH
BA BLK CHKP
CMA DAL DGX
ECA ETN GAP
GENZ KCG LCC
LNN MAN MI
MO MS MTB
STJ SWK TIN
TXT USB USG
UTX WFC
WED OCT 20 AFTER
ACF ACL ADS
EBAY ESV FNF
ISIL LRCX NE
NFX NFLX RHI
RJF STX TSCO
TSS XLNX
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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