S&P Retail SPDR Market Prediction Path Moved Lower

The S&P Retail ETF XRT was revised lower today on the Symmetrical Triangle breakdown. XRT broke down out of the Symmetrical Triangle pattern after J.C. Penny cut its 2017 earnings forecast on Friday, October 27, 2017. J.C. Penney cut its forecast for 2017 adjusted earnings to 2 cents to 8 cents per share from 40 cents to 65 cents. The breakdown today on XRT wasn’t just about J.C. Penny. Citigroup downgraded Macy’s stock from “Neutral” to “Sell” on Monday, October 30, 2017, citing poor performance from the company’s retail business as the primary reason. Citi analyst Paul Lejuez said that Macy’s has seen significant pressure on sales/margins for several years, and that they no longer make much money as a retailer.
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I’m Hopelessly Addicted to Amazon Stock

I took a swing long position in Amazon stock today after the chart confirmed a candle over candle reversal. Folks I'm addicted to Amazon as a company as well as its stock.

If you watch the Saturday Show on YouTube then you know my wife has severe pancreatitis. She has been hospitalized since August 1, 2017. Amazon has made things better for my family. I needed to order special medical supplies for my wife and even electrolyte ice-pops that make it possible for her to absorb potassium through her mouth because she can't hold down anything in her stomach. These items are such "specialty" items that it would be impossible to find these things locally.

High Yield Debt Outperforms Prediction But Down From Here

High yield debt outperformed its prediction surging higher instead of going sideways. That was awesome and really helped to lift markets but unfortunately the predicted path is down from here.
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S&P 500 Measures Concentration of Wealth More than Economic Growth

Monopolies are sucking up everything in their vortex as the concentration of wealth continues. Examples of monopolies are Amazon, Google, Apple, and Facebook.

Amazon is destroying retail and it’s expanding into the food industry now. Amazon brings in automation technologies which will keep adding pressure on other low wage sectors. When Amazon announced the buyout of Whole Foods, we saw Amazon’s stock go up but everyone else in the grocery industry went down.

Amazon will layoff thousands of employees of Whole Foods and replace them with self-serve electronic cashiers. The move to layoff workers and automate has caused bubbles in higher education debt, automobile loans, consumer debt, and a new round of mortgage debt. Meanwhile, state and local governments remained strapped, and the ordinary services of everyday life are rapidly diminishing.

The trend of a few companies dominating everything at the expense of all others continues and it’s the driving force behind income inequality in the U.S.

As monopolies like Amazon continue to eliminate smaller businesses, wealth becomes more concentrated as it flows to corporate officers and shareholders.

The market cap of tech giants is already greater than the GDP of large U.S. cities. Google is bigger than Chicago and Amazon is bigger than Washington DC.

Facebook, Amazon, Apple, Microsoft and Google parent company Alphabet are the top five contributors to the S&P’s 500 gains this year. In other words, these monopolies are sucking investing dollars away from other companies thus the S&P 500 keeps rising even though the economy is slowing. In this scenario, the S&P 500 is more a gauge of the growing concentration of wealth than it is of the economy.

Fundamentals Driving the Crude Oil Price Chart

Oversupply is what is driving the crude oil price chart lower. In an article from Reuters (link above), it states that oil has hit a 6 month low on rising supply and slowing demand.

Crude Oil Price Chart

Crude Oil Price Chart

Last year I put the fair market value of oil in the mid to high 30’s. My logic last year holds true today. The oversupply of oil isn’t much better than when the price hit $26 a barrel back in February 2016.

Game Theory quantifies how it pays to cheat and it’s why OPEC production cuts always end up falling apart. We have Libya and Nigeria, who were exempt from production cuts, increasing output to take advantage and grab greater market-share.

We also have weak U.S. economic reports coming from retail sales, core inflation, and industrial production which suggests the economy is slowing and therefore oil demand will drop.

How the Retail Collapse Is Spreading Outward Through Bankruptcy

The retail collapse is spreading outward through the bankruptcy auction process. Retailers are attending bankruptcy auctions and are buying up assets at bargain prices. The problem is that they are buying assets by borrowing at low interest rates and going further into debt. As the US consumer spends less at retail stores because of rising interest rates, any retail company heavily in debt is exposing itself to a collapse as well.

Case in point, Stage Stores has recently acquired certain assets of Gordmans Stores through a bankruptcy auction. Under the terms of the transaction, the Stage subsidiary will acquire a minimum of 50 Gordmans store leases, with rights to assume leases for an additional seven stores and a distribution center; all of Gordmans’ inventory, furniture, fixtures, equipment and other assets at the 57 store locations; and the trademarks and other intellectual property of Gordmans.

Stage intends to fund the transaction and related investments from existing cash and availability under its credit facility. The transaction is expected to close during Stage’s first quarter of fiscal 2017, subject to the approval of the court administering the Gordmans bankruptcy and customary closing conditions.

Stage has a little over $13 million in cash, but a whopping $163.7 million in debt. What Stage should be doing is tightening its belt and paying down its debt now that the interest on that debt is rising. Instead, Stage was tempted by the bankruptcy of Gordmans to spend money acquiring assets to try and turn around its own business. It’s sort of like a desperate attempt to stem one’s own losses by acquiring assets that led to the demise of another company. If the assets for sale were that good, Gordmans wouldn’t have gone into bankruptcy in the first place but Stage is desperate and chasing yield and so they threw sound financial decisions to the wind IMO.

This situation with Stage is playing out over and over again. We are only three months into 2017 and already nine major retail brands have filed for bankruptcy: Gordmans, hhgregg, RadioShack, Gander Mountain, BCBG Max Azria, MC Sports, Eastern Outfitters, Wet Seal, and The Limited. At this rate, the industry is on pace to surpass the high of 18 major retail bankruptcies set in 2009 during the last recession.

Rumors are circulating that Payless and Bebe are both close to filing for bankruptcy too.

Folks this is how the retail collapse spreads outward. It wouldn’t surprise me to one day see Stage assets being sold off in a bankruptcy auction. BUYER BEWARE!

Sofi AI Market Sentiment Gauge

Sofi AI Market Sentiment Gauge

Market is neither overbought or oversold.