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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Lazy & Hazy...Maybe By Charles Payne

    Roll out those lazy, hazy, crazy days of summer
    those days of soda and pretzels and beer
    roll out those lazy, hazy, crazy days of summer
    Dust off the sun and moon and sing a song of cheer

    -Nat King Cole

    It was another tough session, but a walk in the park compared with the previous week. Investors are entering September musing about those lazy, hazy days of summer that never materialized last month. The month of August saw the Dow Jones Industrial Average down 4%, its worst month since 2012. So, we enter a new month with a glass jaw and lots of confusion. For all the hoopla that's accompanied news coming out of China, investors need to focus on the domestic economy.

    As for China, its purchasing managers' index (PMI) numbers show the fastest pace of contraction in three years, although there was a sigh of relief when its manufacturing number came in at 49.7, in line with consensus. However, the non-manufacturing number of 53.4 points to an expansion in the service sector.

    There's a lot of data to sift through for American investors this week, including the jobs report on Friday. Reactions to news will be swift as yesterday's reversal in oil that sent shares in sector soaring. I like a lot of the names in that space.

    Oil Report

    Warren Buffett has called the oil rout over and has put his money where his hunch is.

    I have a few hunches too, and think there will be a fortune made for long term investors.

    To that point, I've updated our Oil Report. For a copy, contact your representative or click here to download the report PDF.

    Charles Payne

    Founder & CEO

    Wall Street Strategies

    Summer isn't officially over, but the days are numbered. There's still a chance that investors will be able to "Dust off the sun and moon and sing a song of cheer," but get used to wild gyrations until most questions are answered.

    Today's Session

    So, China is down, but there's a chance we could see our equity market take a larger hit. That said, it's inconceivable those in charge in China will allow its market to stay down ahead of Thursday's massive celebration of the 70th anniversary of China's victory over Japan in WWII (I think Japan and America might have a different version of history). Moreover, back in November 2013, China announced it would allow the stock market to play a "decisive" role in its economy. The Shanghai market was trading around 2,150 at the time of the announcement and mostly moved sideways until gold fever broke out.

    For now, look for support on the Shanghai to hold around 2,900.

    The bull market is long in the tooth and breaking down. Now there's one lever of the bull market that's official dead- positive rationalization.

    Consider the manufacturing data that sent China's market lower and is spooking markets around the globe actually was in-line with consensus estimates and probably would have pointed to expansion if many factories weren't taken off line ahead of this week's military parade. It wasn't long ago that rationalization would have seen China's market higher on the news and the rest of the world riding their coattails.

    Of course this has been developing for a while in our stock market where stocks were able to rally despite slumping top line growth for more than a year. That's not happening anymore. In fact, this morning Dollar Tree (NASDAQ:DLTR) posted financial results that blew away the street on earnings, but missed on revenue- down the stock goes!

    In many ways, this is a good development as it will make price discovery a purer mechanism, but also makes it more painful. The flip side of this development is good news has been ignored as I've seen numerous companies blow them away on the top and bottom lines and offer strong guidance only to see negative rationalization take the stock lower.

    For today here are the key support numbers:

    Dow Jones Industrial Average

    • 16,000
    • 15,666 (re-test last week's low)
    • 15,500

    NASDAQ

    • 4,726
    • 4,676
    • 4,500 (re-test last week's low)

    Not forcing the issue here, but once dust settles, there will be huge money making opportunities. Now is a great time to review that special report I offered on August 21- every single stock rallied HUGE off the lows, many more than 20%. This is a buy and hold service, but some subscribers traded several of those ideas.

    Sep 01 9:52 AM | Link | Comment!
  • Scream Machine - By Charles Payne

    Goliath

    Riding the waves of the market includes a lot of factors from personal temperament to underlying fundamentals. The market has seen deterioration in those fundamentals as top line revenue growth has stalled for more than a year while earnings have been helped with corporate stock buybacks. Then there's the emotions of the overall market.

    It all makes for confusion which exacerbates the wild ride to the point of being intolerable for so many. If the market swoon is mostly the result of panic and confusion, but also solid fundamental underpinnings, it's like riding a steel rollercoaster. The largest steel rollercoaster is "Kingda Ka" at Six Flags in New Jersey with a drop of 418 feet. The largest wooden rollercoaster drop is Goliath at 180 feet. Both are designed to provide thrills and fun, but the idea that one is steel and the other is wood plays a psychological role.

    The economic backdrop isn't the same as past crashes and few stocks outside of the biotechnology space are outrageously overvalued. On the other hand, many are actually oversold. But investors feel like this is Goliath and closing their eyes doesn't make the ride fun or thrilling. But a year from now, most will be able to chuckle and smile if they hold on. This doesn't mean close out losers, but that determination has to be made based on company fundamentals, not the screams of fellow riders.

    Today's Session

    China opened lower the day before it is set to release an update on manufacturing that will send that market into a frenzy- one direction or another.

    Stanley Fischer spoke over the weekend and the dove sounded slightly more hawkish, but more importantly, seemed to try to convey the message the Fed will adjust rates at the right time. While the Fed isn't going to wait for 2% inflation to be official, it more than likely will be confident inflation's on track before intervening.

    Then there's the typical angst that comes the week of jobs report and this Friday will more than likely make or break the notion of the Fed hiking rates. That said, I'm rooting for good news and think the market is as well. (A lot of talking heads will regurgitate the same line about bad news being good. However, that hasn't been the case in a long time.)

    Oil Report

    Warren Buffett has called the oil rout over and has put his money where his hunch is.

    I have a few hunches too, and think there will be a fortune made for long term investors.

    To that point, I've updated our Oil Report. For a copy, contact your representative or go to www.wstreet.com to sign up for the report.

    Charles Payne

    Founder & CEO

    Wall Street Strategies

    Aug 31 10:25 AM | Link | Comment!
  • Wall Street's Fickle Rating System - By Charles Payne

    Why is the stock market so volatile? There are a lot of reasons, but one of the reasons not discussed is the squeamish and sketchy manner of Wall Street analysts. Once, they were touted as the calmest and smartest folks in the game, then they became promotional arms for the capital raising divisions (let us take you public and you'll get strong buy ratings and favorable coverage). Now, these departments are like the walking dead. Their fundamental work is taking a backseat to investor reaction and short-term hiccups.

    Take the case of Workday (NYSE:WDAY), the human resources company that operates in the cloud. The company has been a juggernaut out the gate and posted results that looked like more of the same, which was impressive. However, management mentioned slower growth for a single quarter, even while upping its revenue and earnings guidance above their own prior guidance and Wall Street consensus. The initial reaction saw the stock down $5.00 before the market open yesterday.

    By now, most investors expect stocks to be hammered when all the news -save a sliver of time- is beyond amazing. No more than four firms lowered their share amounts when price targets were huge, even as they mostly extolled the virtues of the company. Unbelievable!

    Brokerage Firm

    Observations

    New & Previous Target

    RBC Capital

    The F3Q16 guidance is lower than expected. But F4Q16 implies acceleration; win rates are up and the core financial pipeline is 2X vs. end F1Q16.

    $83 from $100

    Northland Capital

    Management lowered 3Q16 billings expectations as more-normal upfront payments caused ACV to be closer to 100%, down from the historical 110%.

    $87 from $105

    FBR Capital

    I find it impressive that the company was able to approach operating margin break-even, even as it drove the material top-line upside. WDAY raised its FY16 revenue and operating margin guidance, exceeding consensus expectations.

    $90 from $110

    Needham

    The firm believes that the underlying fundamentals are not only healthy, but it's improving. Win rates improved in the 2Q, while Financial pipelines doubled in 90 days from 2Q to 3Q. The firm expects the company to cross the profitability threshold in FY17 on a permanent basis.

    $92 from $10

    Source: Various News agencies to be updated

    There's no doubt in my mind the stock was going to open, and at the very least, retest Monday's lows. Then, Citigroup came to the rescue with a 'buy' recommendation (DA Davidson also rated the stock a buy, although its target seemed timid at $97 from a previous target of $90).

    Moreover, if you're wondering where the pressure is coming from on company CEOs, a large part is the nonsense business models that can't be tweaked or near-term pain endured in order to build for the future. That's the very essence of investing.

    Today's Session

    China is up, but the US stock market begins the session perhaps thinking too much ahead of the weekend. This week is one for the record books and will be studied for years. It's too early to know the lessons, although staying the course should be the main lesson. One thing people will try to figure out is who the villains were and who were the heroes.

    Heroes

    • Individual Investors- they didn't panic and, in fact, most were looking to buy the crater.
    • Economic Data- lost in the haze of the panic, virtually all the releases this week came in better than expected, including the GDP revision yesterday.
    • China- came through with several attempts to stop the bleeding…American investors seem okay with the suggestion of jailing any sellers.

    Villains

    • China- the house of cards is imploding and for some reason we're angry.
    • Machines- the algorithms went nuts…but there's an old saying, 'don't hate the robot, hate the programmer.'

    Then there's the Federal Reserve which some say came to the rescue via comments from William Dudley of the New York Fed. I'm not buying that for a few reasons. First, he's a dove: his comments weren't surprising or new. Second, he still left the door slightly ajar for a rate hike next month.

    Hearing the Fed

    Dream if you can a courtyard
    An ocean of violets in bloom
    Animals strike curious poses
    They feel the heat
    The heat between me and you

    - When Doves Cry by Prince

    The Yellen Federal Reserve is as dovish as they come, which means further accommodation isn't out of the question, but that also means a greater chance of staying too low for too long (see Alan Greenspan).

    On that note, the previous Fed had three hawks with greater talons than any on the current configuration. So when you hear Richard Fisher, Charles Plosser and Loretta Mester on television sounding like the end is near, understand they are hawks.

    By the same token, here's the breakdown of current members.

    Fed Doves

    Yellen

    Dudley

    Evans

    Lockhart

    Fed Semi-Doves

    Brainard

    Fischer

    Tarullo

    Williams

    Fed Semi-Hawks

    Lacker

    Powell

    I don't think there will be a rate hike in September, maybe December, but it still a stretch in my mind. The economy needs to get on track and we can't be sitting around celebrating 3.7% growth- need 5% or better.

    Aug 28 10:11 AM | Link | Comment!
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