Staying Nimble on Policy, GE, the Golden Arches and Texas Instruments

By the end of the day, it sure looked like we were getting more of the same: The long end of the Treasury yield curve continued to show weakness. The U.S. Ten Year Note paid a rough 4.21% on the way out on Tuesday afternoon, holding a level that few thought possible when the Federal Open Market Committee got a new era of supposedly easier monetary policy off to an aggressive start on Sept. 18. U.S. Ten Year paper has paid more than 4.24% overnight, as the bond market continues to price in something unexpected. Perhaps it's the stronger-than-anticipated, at least by this economist, domestic macroeconomic data, with a yellow highlighter through the jobs numbers that seem not to quit. 

Even if some of us doubt the validity of the seasonal and birth-death models applied to those numbers for job creation, we seem to be few in number. More importantly, the algorithms that react to the data and provide price discovery to our financial marketplace, will only recognize the data and not how it was derived. These algorithms can read keywords in the headlines, but not those written by the aged and the opinionated. Those keyword readers target actual decision makers.

Policy is what matters and front-running policy, or at least trying to, is what we who act as parasites on the fringes of this marketplace do. For we are the mosquito to the policymaker's windshield. Agility is the name of our game. With nimbleness and a touch of finesse is how we must proceed.

Yes, we can win at this game, but only if we understand who we are and never let either our id or superego rule our process. We find our true self or ego as a result. We may or may not have the credentials and vision to declare ourselves "economists." We may or may not have the patience to declare ourselves "investors." Lastly, we may or may not have the instincts and street smarts to declare ourselves "traders."

All that understood, it is my experience that in order to succeed, we must learn to act as all three. Mastering the macro-led, but politically impacted direction of policy, and the key tenets of both fundamental and technical analysis will be our calling card. How limited are those who claim "only" to be technical analysts or economists? Napoleon thought he saw victory over the hills in what is now modern-day Belgium.

What has worked for us in the past contributes to what we are, but that experience must forever evolve. A permanent state of improvement is the goal. Effort spent seeking that state is our worthy reality. Without that effort, we'll find our own Wellington and our own Blucher hiding out of sight and not where we had expected them.

Tuesday

Gee whiz. Am I glad that I am long gold and silver. Yowza. As for equities, the Tuesday session was mostly an earnings-inspired sell-off across cyclical sectors that was followed by a late rally or really mild rotation into defensive sectors and tech stocks. I will admit to adding to my long position in GE Aerospace GE on weakness and initiating a long position in McDonald's MCD on the unfortunate e-coli related news that forced the shares lower.

I tried to add to my long position in RTX RTX, but have not yet seen the discount I was looking for. As for Lockheed Martin LMT, I am not willing to add (or lighten up) unless the shares break contact with their 50-day simple moving average one way or the other. Do I love these stocks? It's hard not to hold some affection for a name like Lockheed Martin that I have been long since the cows came home. That said, never forget that we are all mercenaries here. Lockheed Martin will not be loyal to me or my family... Hence, I do not owe them a thing.

For the day, the S&P 500 gave up just 0.05%, posting a second straight tiny daily loss and a third tiny daily loss in four sessions. October 15th was the last trading day that the S&P 500 moved more than one half of one percent. The Nasdaq Composite gained 0.18% on Tuesday, posting a fifth consecutive daily win for that index. Again, even as the wins mount, the gains have been small in size for most of those days. Small caps underperformed large caps yet again. This has become a regular theme.

Breadth

Seven of the 11 S&P sector exchange-traded funds closed in the red on Tuesday, with the Staples XLP out in front, gaining 0.56%. The Industrials were the day's big loser, giving back 1.21%. Tech XLK closed down just 0.1%, as there was some bifurcation within the sector. The Philadelphia Semiconductor Index gave up 0.47% for the regular session as the Dow Jones US Software Index gained 1.04%, led by Microsoft MSFT, which was up 2.08%.

Losers beat winners by a rough 4 to 3 at the NYSE, while advancing volume took a 46.4% share of composite NYSE-listed trade. Aggregate trade across NYSE-listings was down just a smidgen on a day over day basis. Not much to take away from that.

Again, the tale gets weird from here. Losers beat winners by a 5 to 4 margin at the Nasdaq, while advancing volume took a 63.8% share of composite Nasdaq-listed trade. Again, aggregate trade across Nasdaq-listings was up 5.2% on a day over day basis. I must ask again. The Nasdaq Composite and Nasdaq 100 have been up consistently, but not by much. Is it negative that Nasdaq-related trading volume is on the rise as losers are consistently beating winners? Or is it positive that Nasdaq-related trading volume is on the rise as advancing volume is consistently beating declining volume? Jump ball.

Anyone Else Notice...

That the markets don't seem to give a hoot what these Fed speakers have been saying of late. Most of the talk has been moderately dovish, but the longer end of the U.S. Treasury yield curve is fighting the Fed, for now at least. That said, precious metals are acting like the U.S. dollar is going to zero vs. its reserve currency peers even as the U.S. Dollar Index appears to strengthen.

Futures markets trading in Chicago are now pricing in an 87.5% probability for a quarter-percentage point rate cut on Nov. 7 and a 69% probability for another quarter-point rate cut on Dec. 18. Looking out past the end of the year at this point is little more than gambling, in my opinion.

Breakout for TXN?

I doubt it. Texas Instruments TXN reported on Tuesday evening, showing unadjusted earnings per share that beat by a dime and revenue generation that at least matched expectations, but reflected a year-over-year contraction of 8.4%. The company also issued current quarter guidance for profitability and revenues that took the high end of the range below Wall Street's consensus view. Yet the stock is up more than 6% overnight. Better than feared?

Ever hear of a quadruple-top pattern? Me, neither. That's a basing period of consolidation with a $215 pivot that you're looking at. Does a rally up to $201-ish do much technically? You see that 200-day simple moving average at $203 and that 21-day exponential moving average at $201. Those are the levels TXN will need to bring swing traders over the wall and to have portfolio managers increase long-side exposure.

You Deserve a Break Today

This McDonald's news is really troubling. I mean, what from a consumer's point of view, has been more consistent in meeting expectations than has been McDonald's? I am not talking about earnings here. I am talking about driving along a dark interstate late at night, at least before GPS with a hungry family in the car, and beyond the next ridge, you see those golden arches reaching for the sky. It may not be the best burger in the world, but it tasted good enough and you knew what you were getting.

Well, apparently some folks in Nebraska, Colorado and a few other states, had no idea what they were getting. Dozens have been sickened, at least 10 are in the hospital including a child and one has unfortunately passed away. What they all had in common, was having mentioned eating McDonald's food before feeling ill, with the Quarter Pounder sandwich seeming to be a commonality.

E. Coli bacterial infections are a rarity when eating out, but they do happen, but at McDonald's? The chain has removed the Quarter Pounder from restaurants in the areas impacted and the fresh, slivered onions that the firm thinks might be the culprit have been removed from food prep areas. I would expect McDonald's to handle this situation about as professionally as any fast-food chain might. I bought small on the dip on Tuesday. It's probably just a trade. I have not decided yet until this plays out a little more if I think the stock is worthy of investment.

Economics (All Times Eastern)

07:00 a.m. - MBA 30 Year Mortgage Rate (Weekly): Last 6.52%.

07:00 - MBA Mortgage Applications (Weekly): Last -17% w/w.

10:00 - Existing Home Sales (Sep): Expecting 3.89M, Last 3.86M SAAR.

10:30 - Oil Inventories (Weekly): Last -2.192M.

10:30 - Gasoline Stocks (Weekly): Last -2.201M.

1:00 p.m. - Twenty Year Bond Auction: $13B.

The Fed (All Times Eastern)

09:00 - Speaker: Reserve Board Gov. Michelle Bowman.

12:00 p.m. - Speaker: Richmond Fed Pres. Tom Barkin.

2:00 - Beige Book.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: T (0.45), BA (-8.38), KO (0.75), GEV (0.22), TMO (5.25)

After the Close: IBM (2.23), LRCX (0.81), NOW (3.45), TMUS (2.45), TSLA (0.60), URI (12.49)

At the time of publication, Guilfoyle was long GE, MCD, LMT, RTX, MSFT equity.