Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: November 2019

THE DAILY EDGE: 18 NOVEMBER 2019: Rebound?

U.S. Retail Sales Rebounded in October Spending at gas stations was up 1.1%, helping drive overall advance in sales

Americans spent more on shopping in October while pulling back on nonessential items, suggesting consumers’ willingness to buy remained solid but more cautious.

Retail sales—purchases at stores, restaurants and online—rose a seasonally adjusted 0.3% in October from a month earlier, the Commerce Department said Friday, after a drop in September. (…)

Consumer spending at gas stations and at food and beverage stores rose by 1.1% and 0.5%, respectively, as shopping for necessities helped drive the overall advance in sales last month.

Spending on big-ticket items in October was mixed. Vehicle sales were up 0.5%, while furniture and home furnishing sales dropped 0.9%, the biggest monthly decrease since December 2018, according to the Commerce Department.

Excluding vehicles and gasoline, categories that are often volatile, October sales were up 0.1%, as Americans spent less on items such as clothing and eating and drinking out.

(…) sales in the August through October period rose 1.1% compared with the previous three months, and were up 3.1% in October from the same month of 2018. (…)

“Rebound” was used profusely by the media and pundits to express relief after September’s widespread declines. Haver Analytics’ table shows the apparent October rebound…

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…but here’s another way to look at the trends: two-month annualized growth rates over the last 8 months:

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In reality, the October rebound merely offset the weak September. The fact is that retail sales stalled, across the board, in September-October, following several very strong months. “Control Sales” exclude cars, gas, building materials and restaurants sales and feed directly into GDP.

U.S. RETAIL SALES (2ms a.r.)

Here’s the MoM growth in Control Sales since April. First 4 months: +8.2% annualized; last 3 months: +1.8%; last 2 months: +1.0%.

fredgraph (4)

There is an old saying in retailing: back-to-school sales set the trend for the all-important fourth quarter. Let’s hope this does not verify this year. The chart below plots YoY growth in Control Sales and nominal GDP. Control sales are still up 4.6% YoY thanks to very strong spring/summer sales but continued softness in November-December will crush the already slowing GDP growth.

fredgraph (5)

The Census Bureau offers another series called Business Sales. This chart plots the quarterly YoY growth rate for each component, highlighting the amazing resiliency of retailers sales so far (last data point Q3’19) against very weak manufacturing and wholesale sales.

fredgraph (6)
U.S. Industrial Production Plummets in October

Industrial production fell a more-than-expected 0.8% m/m (-1.1% y/y) in October on top of a slightly upwardly revised 0.3% m/m decline in September. This was the third monthly decline in the past four months and the weakest monthly change recorded in this economic expansion as escalated trade tensions and slower economic growth abroad continue to take their toll on the U.S. industrial sector. A 0.5% m/m decline had been expected by the Action Economics Forecast Survey. Factory sector output declined 0.6% (-1.5% y/y), also the third monthly decline in the past four months.

Output of motor vehicles and parts collapsed 7.1% m/m (-11.9% y/y) in October, reflecting in large part the strike at General Motors. This strike is now over and motor vehicle output is set to rebound in November. Still, total production in October was weak outside of the auto sector with total industry output excluding motor vehicles and parts falling 0.5% m/m (-0.6% y/y) in October though manufacturing output excluding motor vehicles slipped only 0.1% m/m in October, the same decline as in September. Production apart from manufacturing was also weak in October with mining output down 0.7% m/m (+2.7% y/y) on top of a 0.8% m/m decline in September. Utilities output decreased 2.6% m/m (-4.1% y/y) after a 1.9% m/m rise in October.

Output of final products decreased 0.8% m/m (-1.9% y/y) on top of a 0.3% m/m drop in September. Consumer goods production fell 0.8% m/m (-2.2% y/y). Business equipment output declined 0.6% m/m (-2.5% y/y). Construction supplies production fell 0.4% m/m (+1.1% y/y). Materials production fell 1.0% (-0.6% y/y) with production of both energy and nonenergy materials dropping 1.0% m/m.

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  • And here is the US manufacturing output excluding autos (to remove the GM strike impact). The blue line is the ISM Manufacturing Production index. (The Daily Shot)

Source: Pantheon Macroeconomics

Import and Export Prices Decline

Import prices fell a greater-than-expected 0.5% during October (-3.0% year-on-year), following a downwardly revised 0.1% gain in September (was 0.2%). The Action Economics Forecast Survey expected a 0.4% decline in October. These figures are not seasonally adjusted and do not include import duties.

The decrease in import prices last month was primarily driven by a 3.7% drop in petroleum import costs (-14.7% y/y). Nonpetroleum import prices edged down 0.1% (-1.5% y/y). (…)

Export prices ticked down 0.1% in October (-2.2% y/y), following an unrevised 0.2% decline in September. Forecasters anticipated -0.1%. A 0.3% decline in nonagricultural exports (-2.7% y/y) more than offset the 1.9% jump in agricultural commodities prices (2.2% y/y). (…)

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China Central Bank Warns on Growth Pressure, Inflation Views

China’s central bank said it will “increase counter-cyclical adjustment” to ward off downward pressure on the economy, while staying vigilant on the possibility of expectations that inflation may spread.

The economy faces greater difficulties as investment growth slows and industrial production remains sluggish, the People’s Bank of China said in its third-quarter monetary policy report released Saturday. (…)

“It should be noted that the current external environment is complex, the economy is under rising downward pressure, and some businesses are faced with operating difficulties,” the PBOC said.

The report signals that the central bank faces limited scope for policy maneuvers despite the increasing economic risks. The PBOC will remain committed to a targeted, constrained approach toward easing. It repeated an earlier pledge to continue to cut the amount of money banks need to put aside as reserves to ease credit. (…)

Call me China, U.S. Trade Talks Continue With Some Signs of Progress

Top negotiators from China and the U.S. talked again this weekend, after signs of concessions from both sides on some of the outstanding issues.

China’s Vice Premier Liu He, the country’s key negotiator in the trade talks with the U.S., spoke with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer by phone on Saturday morning Beijing time, according to the Chinese Commerce Ministry. They had “constructive” discussions about each side’s core concerns in the phase-one deal, and agreed to stay in close communication, the statement said. The USTR confirmed the call took place. (…)

(…) Over the weekend, the Trump administration’s plans changed and it now plans to renew the temporary extension for the same 90-day period as it did in August, the sources said. (…)

Multinationals Are Still Pouring Cash Into China

Foreign companies continue to invest more in China even after President Donald Trump called on U.S. firms to look elsewhere, as the rising spending power of 1.4 billion people proves too hard to resist. (…)

Foreign direct investment into China rose nearly 3% in the first nine months of 2019 from a year earlier, according to the Ministry of Commerce, the same pace as 2018’s increase. While the U.S. outstripped that increase last year, investment has dropped off since Trump became president.

“Multinational firms are now more likely to invest in China since serving the market from abroad will be risky given the mutual trade barriers that have been erected and the fact that any truce in the trade war is likely to be only temporary,” said David Dollar, a senior fellow at the Brookings Institution in Washington. (…)

If anything, the trade war is encouraging companies to ensure they have a China base, he said.

That’s the opposite of what President Trump has pushed for: in August the president tweeted that U.S. companies should “immediately start looking for an alternative to China.” (…)

Trade war or not, the lure of 1.4 billion people can’t be ignored, AstraZeneca Plc Chief Executive Officer Pascal Soriot said in an interview at the second annual China International Import Expo in Shanghai. “We have to invest more in China.” (…)

Fortune informs us that

At a “Multinational Summit” in the eastern Chinese city of Qingdao last month, Xi vowed to fling open China’s market to companies from around the world. “The door of China’s opening up will only open wider and wider, the business environment will only get better and better, and the opportunities for global multinational companies will only be more and more,” he said in a letter read out by vice premier Han Zheng.

The Trade War Cost U.S. Farmers Their China Market. A Deal Might Not Bring It Back

(…) In China, the desire to defer to market whims may reflect the country’s increasingly diversified food supply; the country has accounted for the decrease in U.S. agricultural imports by increasing trade with other countries. (…)

“[But] basically, over the past year and a half, China has been really aggressive in trying to diversify where [it’s] buying from.” (…)

“We’re a year and a half into this, and it made China realize [it was] way too dependent on U.S. beans.” (…)

“So [after a trade deal], the market might be open for the U.S., but [American producers] are going to face a lot of competition from all these new players.” (…)

“We’ve lost those markets, they’ve gone someplace else, they’ve built up those relationships,” Krauter, the North Dakota farmer, said. “It’s going to take years, years for that to come back.” (…)

“Because of the African Swine Fever, there is just not that much need for soybeans and corn [to feed pigs],” said Friedrichs. “The U.S. is trying to push China to buy huge amounts of soybeans, but China is saying, sure, but we don’t really need those.” (…)

Hence

Another irritant on the US side is that China has not agreed to set written numerical targets for a planned ramp-up in purchases of American agricultural products, according to the Wall Street Journal. Mr Trump is seeking to lock in up to $50bn in annual sales of farm goods to China in the deal, more than double the level before the trade war was launched. (FT)

Will that be tariffed?

FDA Approves First Chinese Cancer Drug for U.S. Patient Use

The U.S. Food and Drug Administration has granted approval to a blood cancer drug from Beijing-based BeiGene Ltd., paving the way for American patients to access a Chinese cancer therapy for the first time.

The accelerated approval — ahead of even China’s own national drug regulator — marks a breakthrough for the growing legion of Chinese biotech companies determined to take on the world’s biggest pharmaceutical companies in medical innovation and scientific research.

(…) “Chinese biotech is on the rise. The industry is not yet on top of the world but we are quickly closing the gap.”

BeiGene’s Brukinsa capsules was approved for patients with mantle cell lymphoma that have already received other therapies earlier, and will be a competitor to similar blood cancer therapies from AbbVie Inc. and AstraZeneca Plc. (…)

Investment into Chinese biotech startups is surging as the opening up of the Asian giant’s $132 billion pharmaceutical market creates an unprecedented profit-making opportunity for health-care companies. Last week, AstraZeneca announced a $1 billion fund with a Chinese investment bank to support local drug research, while a Shanghai-based company received Chinese regulatory approval for the first new Alzheimer’s drug in 17 years.

BeiGene has emerged as one of the most promising Chinese biotech companies and the new drug, also known as zanubrutinib, is the first in a raft of cancer drugs it is readying for regulatory approval. In a vote of confidence in its pipeline, American generics giant Amgen Inc. bought a 20.5% stake in BeiGene earlier this month for $2.7 billion to jointly develop cancer therapies. (…)

EARNINGS WATCH

From Refinitiv/IBES:

Through Nov. 15, 461 companies in the S&P 500 Index have reported earnings for Q3 2019. Of these companies, 75% reported earnings above analyst expectations and 18% reported earnings below analyst expectations. In a typical quarter (since 1994), 65% of companies beat estimates and 20% miss estimates. Over the past four quarters, 74% of companies beat the estimates and 18% missed estimates.

In aggregate, companies are reporting earnings that are 4.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 3.3% and the average surprise factor over the prior four quarters of 5.3%.

Of these companies, 58.0% reported revenues above analyst expectations and 42.0% reported revenues below analyst expectations. In a typical quarter (since 2002), 60% of companies beat estimates and 40% miss estimates. Over the past four quarters, 59% of companies beat the estimates and 41% missed estimates.

In aggregate, companies are reporting revenues that are 1.0% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.5% and the average surprise factor over the prior four quarters of 0.9%.

The estimated earnings growth rate for the S&P 500 for 19Q3 is -0.4%. If the energy sector is excluded, the growth rate improves to 2.2%.

The estimated revenue growth rate for the S&P 500 for 19Q3 is 3.8%. If the energy sector is excluded, the growth rate improves to 5.2%.

The estimated earnings growth rate for the S&P 500 for 19Q4 is 0.2% (0.6% last week). If the energy sector is excluded, the growth rate improves to 2.4% (2.8% last week).

The swing since Oct. 1 in the estimated Q4 earnings growth rate is –3.9% overall but some key sectors, mostly cyclicals, are getting downgraded big time:

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While the S&P 500 Index, particularly cyclicals, is climbing the wall of worries, consumer-centric equities have failed to make new highs, This while the U.S. economy is hanging by the consumer nails. Something between retail sales trends, earnings estimates and stock behavior does not look rational.

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Saudi Aramco set a valuation target for its initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion and pared back the size of the sale after the government decided to make the deal an almost exclusively Saudi affair.

The initial public offering will now rely on local investors after most international money managers balked at even the reduced price target. The deal won’t be marketed in the U.S., Canada or Japan and on Monday bankers told investors roadshow events in London and other European cities, planned for this week, were canceled. (…)

Nationally, just 10 percent of offers written by Redfin agents on behalf of their homebuying customers faced a bidding war in October, down from 39 percent a year earlier and now at a 10-year low. (…)

(…) About 43 works at Sotheby’s and Christie’s $401 million combined evening sales of impressionist and modern art last week sold for less than their low estimates. That means skittish sellers opted to lower their reserves, or the minimum amount at which they agreed to sell the works, rather than risk having them go unsold. Phillips expected to sell Joan Miró’s “Catalan Farmer Worried About Passing a Flight of Birds,” for at least $7 million, but it wound up selling for $3.8 million with the hammer, or $4.5 million with fees. Sotheby’s also sold a 1934 Pablo Picasso, “Nudes,” for $9.9 million to a third-party guarantor—a bidder who had arranged to buy the work if no-one else stepped up in the sale. The Picasso was expected to sell for at least $12 million. (…)

TECHNICALS WATCH

Lowry’s Research notes that its measures of advance-declines and selling pressure have both begun to trend higher but only to warn of “possible short-term market weakness” as “both appear consistent with other indications of a possible short-term top in the  market”.

However, Lowry’s concludes that “with the weight of evidence still suggesting the bull  market remains alive and well, any near-term  pullback should serve as a buying opportunity.”

THE DAILY EDGE: 15 NOVEMBER 2019

ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, OCTOBER 2019

Advance estimates of U.S. retail and food services sales for October 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $526.5 billion, an increase of 0.3 percent (±0.4 percent)* from the previous month, and 3.1 percent (±0.7 percent) above October 2018. Total sales for the August 2019 through October 2019 period were up 3.8 percent (±0.5 percent) from the same period a year ago. The August 2019 to September 2019 percent change was unrevised from down 0.3 percent (±0.2 percent).

Retail trade sales were up 0.3 percent (±0.4 percent)* from September 2019, and 2.9 percent (±0.7 percent) above last year. Nonstore retailers were up 14.3 percent (±1.4 percent) from October 2018, and gasoline stations were down 5.0 percent (±1.2 percent) from last year.

Stalling?image

U.S.-China Trade Deal Near, but Trump Not Ready to Sign Off, Kudlow Says Negotiators have been working to come up with a written ‘phase one’

(…) “The mood music is pretty good,” he said, adding that Mr. Trump “likes what he sees, he’s not ready to make a commitment, he hasn’t signed off on a commitment for phase one, we have no agreement just yet for phase one.” (…)

Elsewhere:
  • China has reiterated its position that removing existing tariffs is a precondition of reaching a deal. (Bloomberg)
  • U.S. attorney-general says Huawei and ZTE ‘cannot be trusted’

  • Further complicating trade talks, the Senate is preparing for accelerated passage of a law to support pro-democracy protesters in Hong Kong by placing the city’s special trading status under annual review. This bill is slightly different than the House’s version, so the two must be reconciled before moving to President Trump for signature. Beijing and Hong Kong strongly object to the legislation. (Fortune)

  • At least one deal may be moving forward. Nancy Pelosi said she’s aiming to have the stalled U.S.-Mexico-Canada free trade agreement approved by the House this year, a sign that Democrats’ negotiations with the Trump administration are wrapping up. The speaker believes an agreement is “imminent.” (Fortune)

Powell Sees Few Risks Likely to Derail Record U.S. Expansion

(…) “Our forecast is, and our expectation very much is, one of continued moderate growth,” Powell told the House Budget Committee Thursday in Washington. “The U.S. economy is the star economy these days,” he said during the second day of testimony before Congress. “There is no reason to think that I could see that the probability of a recession is at all elevated at this time.” (…)

Powell played down the risks of an overheated economy. He said this expansion was “notable” for its lack of sectors that are “really hot” such as the technology sector or housing markets during the last two business cycles.

“I would say this expansion is on a sustainable footing,” Powell said. “We don’t see the kinds of warning signs that appeared in other cycles yet.” The same goes for financial markets, which “don’t have this notable build-up of leverage broadly across the economy, which is troubling from a financial stability standpoint.”

“There is no reason why it can’t last, at the risk of jinxing us, in principle there is no reason to think that I can see that the probability of a downturn is at all elevated,” Powell said. (…)

Economic Outlook from Freight’s Perspective
  • With the –5.9% decline in October, following the string of declines in May through September (ranging from -3.0% to -6.0%), we repeat our message from the previous five months: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.

  • We acknowledge that: all of these negative percentages were against tough comparisons (some extremely tough), and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, demand is weaker across almost all modes of transportation, both domestically and internationally.

  • Several key modes, and key segments of modes, are suffering material increases in the rates of decline, signaling the contraction is getting worse.

  • We know that freight flows are a leading indicator, so by definition there is a lag between what they are predicting and when the outcome is reported. Nevertheless, we see a growing risk that GDP will go negative by year’s end.

  • The weakness in spot market pricing for many transportation services, especially trucking, along with recent airfreight and railroad volume trends, heightens our concerns about the economy. Weakness in commodity prices, and the ongoing decline in interest rates, have all joined the chorus of signals calling for an economic contraction.

  • The Index on a 2-year percentage change basis went negative (-0.1%). This suggests that the great surge of 2018, or ‘Trump bump’ as it was characterized by many, has now been completely erased at least from a freight flow perspective, as measured by the volume of freight bills paid by Cass.

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Beyond our concern that the Cass Freight Shipments Index is negative on a YoY basis for the eleventh month in a row:


  • We are concerned about the increasingly severe declines in international airfreight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials;

  • We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index;

  • As volumes of chemical shipments have lost momentum, our concerns of the global slowdown spreading to the U.S. increase. We see this as confirmed by the deterioration in the ISM to levels below 50 for the last 3 months (49.1, 47.8, and 48.3). The trade war looks as if it has reached a ‘point of no return’ from an economic perspective, as the rates of decline are accelerating. (…)

Allow me to interject here to mention that the Markit U.S. Manufacturing PMI is now giving a more positive signal than the ISM. Markit’s PMI surveys have proven more accurate in recent years.

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That said, the Cass Shipment Index is worrisome, even more so when we see that the Chemical Activity Barometer has turned down again:

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We should note that dry van trucking volume has historically been a fairly reliable predictor of retail sales (container volume serves a similar role). When studied using the DAT Dry Van Barometer, current demand has fallen below capacity, which suggests that the consumer economy is less healthy than it is widely believed to be and that retail sales are poised to disappoint. We should also point out that this is a period which seasonally should be seeing much stronger volumes. This makes us even more cautious about the outlook for demand for 4Q. (…)image

U.S. Producer Prices Increase As Energy & Food Prices Strengthen

The Producer Price Index for final demand rose 0.4% during October (1.1% y/y) and reversed the 0.3% September decline. A 0.3% gain had been expected in the Action Economics Forecast Survey. Producer prices excluding food & energy rose 0.3% last month (1.6% y/y) after a 0.3% decline. A 0.2% rise had been expected. The PPI excluding food, beverages and trade services, another measure of underlying price inflation, edged 0.1% higher (1.5% y/y) last month after holding steady in September. (…)

Prices for core goods for final demand held steady (0.6% y/y) after easing 0.1% in September. Core finished consumer goods prices rose 0.1% (1.6% y/y) for the third time in the last four months. Core nondurable consumer goods costs improved 0.2% and the y/y change fell sharply to 2.2%, down from a high of 3.8% in September of last year. Durable consumer goods prices declined 0.2% (+0.8% y/y) after slipping 0.1%. Passenger car prices weakened 1.5% (+0.2% y/y) but appliance prices rose 0.9% (NSA, 3.0% y/y). (…)

Services prices strengthened 0.3% (2.0% y/y) after declining 0.2%. Trade services prices surged 0.8% (2.2% y/y) and recovered most of September’s weakening. (…) Services prices less trade, transportation & warehousing edged 0.1% higher (1.9% y/y) following two months of strong increase.

Construction costs strengthened 0.4% but the y/y increase weakened significantly to 3.9%. (…)

Prices for intermediate demand rose 0.4% (-3.7% y/y) following two months of decline.

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fredgraph (1)

Looks like 2.0% is still the norm, unless you are selling core goods where noflation reigns.

fredgraph (2)

EARNINGS WATCH

We now have 458 company reports in. Actual earnings growth for the 458 companies having reported so far is –0.5% on revenue growth of +4.1%. The beat rate is 74%, the surprise factor +4.5% and the blended growth rate –0.4% (+2.1% ex-Energy), down from +0.3% on July 1

By comparison, after 463 reports during Q2, the beat rate was 73%, the surprise factor +5.5% and the blended growth rate +2.9%, up from +0.3% on July 1. Actual earnings growth for the 463 companies having reported was +3.1% on revenue growth of +4.9%.

Excluding the effect of buybacks, Refinitiv estimates that Q3 net income declined 2.5% on revenues up 3.8%, a marked deterioration from Q2 when net income rose 2.0% on revenues up 4.7%. Q4 net income is currently expected to decline 2.2% on revenues up 4.0%. This revenue growth estimate looks on the high side given the decelerating GDP growth rate and soft inflation numbers.

On the other hand, buybacks will boost EPS by 2.4% in Q4 and 2.5% in the first half of 2020 from +2.1% in Q3’19 and +1.2% in Q2’19.

Trailing EPS are now $163.90, down from $164.29 at the same time in Q2 and 0.3% lower than the $164.43 and $164.31 at the end of August and September respectively.

Q4 estimates keep being ratcheted down to +0.2% (+2.4% ex-Energy from +5.0% 2 weeks ago). This is down from +4.1% on Oct.1.

TECHNICALS WATCH
Stock-Market Technical Indicators Flash Warning Traders were abuzz this week after two technical indicators, the “Hindenburg Omen” and “Titanic Syndrome,” flashed in unison—an unusual event that sometimes precedes a selloff.

On Tuesday, both indicators turned on at once, according to SentimenTrader, a research firm that uses versions of the two indicators based on the Nasdaq Composite Index.

The Hindenburg Omen flashes when the numbers of stocks reaching both fresh highs and fresh lows pass certain thresholds. SentimenTrader looks at the number of stocks in the Nasdaq that have reached 52-week highs and 52-week lows on a given day. For the indicator to turn on, both of those numbers must exceed 2.8% of the total number of stocks in the Nasdaq that have either advanced or declined that day. A couple other conditions apply too.

The Titanic Syndrome is designed to highlight when there has been a jump in the number of stocks doing poorly, amid a market that is generally doing well. SentimenTrader’s version turns on when the Nasdaq-100 has closed at a 52-week high some time during the past seven trading sessions, and new 52-week lows for stocks in the Nasdaq Composite outnumber 52-week highs.

The last time the indicators flashed in unison was July 18, according to SentimenTrader, not long before stocks sold off sharply amid fears of a possible recession. It also took place in October 1987 and March 2000, ahead of big crashes—although at other times the two indicators flashed together and not much happened afterward. (…)

Both indicators are binary, meaning they are either on or off, and both are designed to show when cracks are emerging in a market that has been on an upswing. (…)

The facts from SentimenTrader’s data:

Since 1986, there have been 16 such occurrences. Ten were followed by negative 1-year returns on the NDX  averaging –16.6%. The 6 positives returned 14.0% on average the following year.

Of the 10 negatives, 4 were part of multiple warnings during the same year (1987 :2; 2007:3 and 2018:2). Excluding the multiple warnings, there have been 11 occurrences with 6 negative (average: –22.7%) and 5 positive (+15.7%).

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But ST’s Jason Goepfert adds this important warning:

It was very rare to see these trigger, and not see weakness in the Composite over the next couple of months. The signals in 1991 and 1996 managed it, but other than that, not so much. It was also a bad sign for the broader market, with the S&P suffering a poor risk/reward ratio. If these start to trigger for the NYSE as well, then it’ll be even more reason to worry.

With 52-week lows swamping new highs on the Nasdaq on Thursday, both warning signs triggered again. It’s very rare to see both signals trigger on consecutive days. It’s only happened 7 other times in 33 years.

The losses here tended to be more severe. The 1996 instance again managed to avoid any real weakness, and in 2007 it took a while before the gains were reversed. But overall, the risk/reward after consecutive “double trouble” signals was exceptionally poor. (…)

It’s not the only warning. We’ve touched on some “participation problems” a few times in recent weeks, and they seem to be getting worse.

Over the past 7 sessions, the S&P managed to show a gain, but breadth on the NYSE was negative 6 of the 7 days. Negative breadth, in this case, simply means more declining than advancing securities, i.e. an Up Issues Ratio below 50%.

Lowry’s Research also notes weak participation in recent uptrends.

Kissinger warns of ‘catastrophic’ conflicts between China and US

Conflict between the United States and China will be “inevitable” and result in “a catastrophic outcome” that “will be worse than world wars” unless the countries settle their differences, according to former US secretary of state Henry Kissinger.

“We are in a difficult period now. I am confident the leaders on both sides will realise the future of the world depends on the two sides working out solutions and managing the inevitable difficulties,” he said at an event hosted by the National Committee on US China Relations in New York on Thursday.

“There is no doubt many aspects of the evolution of China are challenging to the US,” the 96-year-old said. “It never happened before that two major countries in different parts of the universe were in similar positions.”

But they must understand that a permanent conflict between them could not be won and would end in “a catastrophic outcome” for Beijing and Washington, he said. (…)

“It’s no longer possible to think that one side can dominate the other,” he said. “They have to get used to the fact that they have that kind of a rivalry.” (…)