Five Charts You Should See After This Week’s Stock Slide

 

May 19, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

Stocks continue to bounce back today.  But the technical breakdown of the Trump Trend on Wednesday

still looks intact.  As I said on Wednesday, this looks like a technical correction in stocks (even considering today’s bounce), not a fundamental crisis-driven sell-off.

​With that in mind, let’s take a look at the charts on key markets as we head into the weekend.

Here’s a look at the S&P 500 chart….

may20 spx

For technicians, this is a classic “break-comeback” … where the previous trendline support becomes resistance.  That means today’s highs were a great spot to sell against, as it bumped up against this trendline.

Very much like the chart above, the dollar had a big trend break on Wednesday, and then aggressively reversed Thursday, only to follow through on the trend break to end the week, closing on the lows.

may19 dollar

​On that note, the biggest contributor to the weakness in the dollar index, is the strength in the euro (next chart).

MAY19 EUR

The euro had everything including the kitchen sink thrown at it and it still could muster a run toward parity.  If it can’t go lower with an onslaught of events that kept threatening the existence of the euro, then any sign of that clearing, it will go higher.  With the French elections past, and optimism that U.S. growth initiatives will spur global growth (namely recovery in Europe), then the European Central Bank’s next move will likely be toward exit of QE and extraordinary monetary policies, not going deeper. With that, the euro looks like it can go much higher. That means a lower dollar. And it means, European stocks look like, maybe, the best buy in global stocks.

​A lower dollar should be good for gold.  As I’ve said, if Trump policies come to fruition, inflation could get a pop.  And that’s bullish for gold.  If Trump policies don’t come to fruition, the U.S. and global growth looks grim, as does the post-financial crisis recovery in general. That’s bullish for gold.

may19 gold

This big trendline in gold continues to look like a break is coming and higher gold prices are coming.

​With all of the above, the most important chart of the week is probably this one …

may19 yields

​The 10 year yield has come all the way back to 2.20%.  The best reason to wish for a technical correction in stocks, is not to buy the dip (which is a good one), but so that the pressure comes out of the interest rate market (and off of the Fed).  The run in the stock market has clearly had an effect on Fed policy.  And the Fed has been walking rates up to a point that could choke off the existing economic recovery momentum and, worse, neutralize the impact of any fiscal stimulus to come.  Stable, low rates are key to get the full punch out of pro-growth policies, given the 10 year economic malaise we’re coming out of.​Invitation to my daily readers: Join my premium service members at Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse portfolio of the most high potential stocks.

 
 
Should You Follow Carl Icahn into Hertz?

8//27/2014

Over the past week, I received hundreds of emails concerning Carl Icahn’s announcement that he took an 8% position in Hertz (HTZ). We know Icahn has already publicly stated he wants to actively engage with Hertz management and its CEO, but there has been no word about Icahn pushing Hertz to merge or sell itself.

Here is why: First, regulators would never approve a Hertz-Avis merger. The two entities represent too large a share of the industry. It would essentially be a monopoly. So a merger with Avis isn’t happening — at least in my opinion.

Though, given the quick 25% run up in Family Dollar (FDO) last month after Icahn forced a merger with Dollar Tree (DLTR), it’s easy to see why investors are hoping for a similar result. Clearly, people don’t want to miss out on the next FDO. On that note, you can read some great analysis of the Family Dollar deal, where my partner and I predicted the merger and picked the bottom in Family Dollar stock (read that here).

But again, this is not going to happen with Hertz. Icahn and numerous other investors are long Hertz. Hertz is actually one of the most popular stocks owned by top billionaire hedge fund managers, because it’s a pure play on the improving economy, and rental car companies have lagged airlines in terms of raising their prices.

So many hedge funds are betting on Hertz increasing its prices, like the airlines did last year, and they are betting that demand will continue to improve with the recovery in the economy. It’s that simple.

Also, this is not a classic Icahn play. He typically comes into a deeply depressed stock selling near its 52-week low or multi-year lows. Icahn purchased Hertz near the stock’s all-time high.

But what Icahn is doing is playing his “change” card. He has recently laid out his evidence, based on his history as an activist investor, of how replacing a CEO is a powerful catalyst for producing shareholder wealth creation. And one of his fellow shareholders in Hertz is already at work on that strategy: Fir Tree Partners is pressuring the board to oust the CEO.

Will Meade
President of The Billionaires Portfolio