The Lady is Singing, PnL Ringing

Hi everyone,

I hope you’ve had another good week! Mine has been absolutely frenetic and I am writing this slightly later than usual for a Friday. The market has been incredibly engaging (and for the most part, very kind) and I have been managing all sorts of things, including the weekly Trading Club video that I recorded for members on Wednesday. But the main reason I opted to defer writing this until this afternoon, rather than my typical morning slot, was the pending US jobs report release at 13:30 BST. Maybe this is what they call ‘gut feel’, but I had a strong inclination that we could see a positive surprise in the data – though not as big as it turned out!

Here you can see the US economic calendar on Bloomberg, showing the Nonfarm Payrolls and Unemployment data as the two main releases. Both came in significantly better than estimated, and confirm our recent view that the worst is over, with the other data in the past few weeks clearly improving (remember what I have been saying about the ‘rate of change’, not the ‘level’, recently?).

Economist forecasts had called for a decline of 7.5 million jobs and another jump in the unemployment rate to 19%. Yet, to the amazement of analysts, the data showed that the US economy in fact added 2.5 million jobs in May, and saw the unemployment rate fall to 13.3% from 14.7%.

The reaction in risk markets (namely the S&P 500 futures) showed just how big of a surprise this was, and provided more fuel for the rally which still seems to have far more critics than supporters (just embrace it!).

Since posting the above chart a few minutes ago, the futures have climbed another 11 points to 3173. Remarkably, the futures are now only 2% away from an all-time high, without any clear resistance overhead. Looking to the cash market (set to open in a few minutes) a breakout of the equivalent high of 3394 targets a move towards 3677 (+18% from yesterday’s close) according to technical analysis using Fibonacci extensions.

In case you’re still sceptical of the data, how about this for a signal? I shared this chart on our feed earlier in the week, which shows the remarkable ‘breadth’ in the S&P 500 as more than 90% of its constituents crossed above their 50-day moving average. According to Ned Davis Research, this has only happened 19 times previously, and in 100% of cases the market was (on average) 17.3% higher one year later. Further more, in 18/19 cases when this signal appeared, the market also gained over the immediate six months. Accepting that at best the past only ‘rhymes’ with the future (and of course, cannot predict it), this still seems like a very clear signal that bulls will be emboldened by.

In this week’s Trading Club video, I featured 3 companies from my watch list that could potentially outperform even when the market itself is seeing large gains. Here you can see the template that we use to analyse a stock using the 5-Step Company Analysis model that Lex teaches in our MDT Course.

Here’s the second company, which happens to be in a different sector, but shares similar growth characteristics.

And finally, a more established name from the same industry, which offers growth at a far more reasonable valuation.

(Full details and analysis of these companies along with my commentary on other equities, currency and commodities markets can be accessed immediately in the member area of our website).

To conclude, they say that “it ain’t over until the lady sings”. If the bottoming out in the coincident (confirmatory) jobs report is anything to go by, in terms of the C-crisis of 2020 she’s signing loud and clear…

If you would like to join us for our full analysis including new insights each week, or learn from the ground up with online tuition from Lex in our MDT online course, then head to milliondollartraders.com and take your financial knowledge to the next level right away!

Have a very pleasant weekend,

James