Thursday, January 14, 2016

Forget the emotional bears and bulls — these numbers say buy China now

The market bears just keep winning in the new year.
The S&P 500 has slumped into correction territory, and Chinese stocks today briefly traded in bear-market territory. ZeroHedge is gleefully reporting that a “legendary” J.P. Morgan quant sees the beleaguered S&P SPX, -2.50%  getting more grizzly. That’s using the common definitions for correction and bear territory — drops of 10% and 20%, respectively, from closing highs.
Any silver lining in these dark clouds? Well, at least analysts are getting a bit more creative in their finger-pointing after each market dive. Sure, they’re still blaming China’s economic slowdown and crude oil’s crash, but U.S. consumer-discretionary stocks are now key culprits. Yes, we’re looking at you, Netflix NFLX, -0.28%  and BorgWarner BWA, -9.52%  .
Here’s another possible reason for hope: Some investors are embracing Chinese stocks, and not just the buyers from Beijing suspected of orchestrating today’s upside reversal by the Shanghai Composite.
“We don’t believe in the gloom and doom scenarios,” says Dave Garff of Accuvest Global Advisors, referring to the China angst. “You have to look at the recent poor momentum as a negative, but on balance, the positives outweigh the negatives.” More from Garff in the call of the day.
Today’s chart is upbeat, suggesting that oil could find a bottom at last. But the stat of the day tosses red meat to the bears, as it gives the latest damage estimate for global stocks in this not-so-happy new year.
Key market gauges
S&P ESH6, +0.21%  and Dow YMH6, +0.27%  futures are pointing to a slightly higher open, but they were up more earlier, and let’s not forget that yesterday’s morning gains didn’t stick. Chart watchers see head-and-shoulders patterns and potential for “the most important session the U.S. markets DJIA, -2.21%  have had in four years.” Europe SXXP, -2.18%  is falling, and non-Chinese Asian markets closed with losses. The Shanghai Composite SHCOMP, +1.97%  undercut its August closing low before turning positive. Oil CLG6, +1.18%  and gold GCG6, -0.10%  are higher, as a key dollar index DXY, -0.03%  drops.
The call
This table is alphabetical. The top-ranked nations are Japan, Korea, Germany, China, Hong Kong and Taiwan.
Accuvest’s Garff says his shop’s investing strategy is to search each month for “countries that provide the best opportunities in global markets going forward.”
In their latest look-see, China has moved up to fourth-best nation, and investors therefore should overweight that country, according to Accuvest’s model. That model looks at four factors: fundamentals (earnings and economic growth), momentum (relative strength), risk and valuation (relative and absolute).
“We want to be as dispassionate as possible, and not be swayed by market commentary and sentiment,” Garff told MarketWatch in an email. “As always, our views could change next month, but for the moment, we continue to like China.”
He acknowledges the many good reasons for steering clear of China, including suspect data from the government and listed companies, as well as Beijing’s various missteps as it manages its economy and financial markets. But Accuvest’s president and chief investment officer argues the U.S. has “similar issues” with data, while a growing middle class and other demographics are on Beijing’s side as the economy slows and changes.
The stat
$3.2 trillion — That’s the value wiped out by this year’s global stock swoon, according to data as of Wednesday’s close from Howard Silverblatt at S&P Dow Jones Indices. He tracks the loss via the S&P Global Broad Market Index. Last week, the damage amounted to $2.5 trillion, according to other data trackers.
The buzz
GoPro GPRO, -25.46%  is poised to plunge in today’s session after announcing job cuts and disappointing quarterly sales late Wednesday. Fewer of us than anticipated are wearing video cameras to show off our exciting lives, but there is no shortfall when it comes to dark humor or bearish comments:
Read more: Can drones and virtual reality rescue GoPro?
On the earnings front, J.P. Morgan JPM, +2.08%   reported a profit beat before the open, while Intel INTC, -2.36%  delivers after the close.
Cocoa CHOC, +0.35%  rose 10% last year while almost all commodities fell, though it’s down in 2016.
Signs that the emissions-tests shenanigans may go even further, after a report Renault RNO, -12.08%  was raided by French authorities.
Indonesia says ISIS was behind a deadly attack in Jakarta, and Iran may have mistreated U.S. sailors.
The chart
Getty Images
What’s that screeching sound? Maybe oil bulls? But wait, it’s strangely harmonious. Oh, it’s a “bullish bat harmonic” etched by crude futures. Greg Harmon over at Dragonfly Capital has flagged this chart pattern, as he says oil might “hold here and reverse.”
You probably know the head and shoulders, or the cup with handle, but maybe not this formation named after everyone’s favorite flying mammal. The bat harmonic has to do with geometric patterns and price turning points, as Investopedia puts it.
“Oil looks oversold from the momentum indicators, but as traders say, ‘oversold can get oversolder,’” Harmon writes. Note his chart below showing oil’s bat harmonic is dated Tuesday, and crude gained Wednesday and is rising this morning. Go here for all of Harmon’s harmonic musings.
The economy
Watch for weekly jobless claims at 8:30 a.m. Eastern Time, along with a report on import and export prices.
On the Fed front, St. Louis Federal Reserve President James Bullard is slated to give a speech at 8:15 a.m. Eastern.
Across the Atlantic, European Central Bank President Mario Draghi is expected to speak at 9 a.m. Eastern. Investors also will be digesting ECB minutes and the Bank of England’s rate announcement.
The quote
“I asked him if I made four times what the average person made, why couldn’t I retire four times earlier? He assured me it didn’t work that way, but I wasn’t sold on his reasons. ... The idea of freedom and having my time be my own, sleeping in, reading and traveling, [now] THAT was the life I craved.” — a lawyer who retired at age 33 in a Q&A with blogger Mr. Money Mustache, who is known for spending less and retiring at 30.
Random reads
GoPro could try sponsoring this Minnesota man who’s creating his own frigid fun.
We have a winner in that big Powerball lottery that captivated those who pay no heed to statistics.
Snoop Dogg barks at Bill Gates after Microsoft’s gamer network goes down.
A “Friends” reunion is happening, and Oscar nominations are due to hit this morning.
Sorry, Sean Penn. El Chapo was actually interested in a Mexican actress, and he apparently hadn’t heard of you.
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