“Every trader has strengths and weakness. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.” — Michael Marcus

1. Venezuela’s Maduro Wins Re-Election — Venezuela’s Nicolas Maduro won a new six-year term in an election deemed illegitimate by the opposition and foreign governments, paving the way for heavier international sanctions. The economy has been in recession since 2014, with the bolivar currency down 99% in the past year and inflation at an annual 14,000%, according to the National Assembly.
2. Argentina Starts IMF Bailout Negotiations — with Argentina on the brink of a financial crisis, the IMF has formally begun bailout negotiations, without any objection from the Trump administration. Such measures rarely advance without U.S. support. The peso has fallen drastically against the dollar, while the nation has been dogged by persistent budget deficits, high inflation and trade imbalances.
3. China to Cut Import Duties On Cars — the easing of trade tensions between the U.S. and China is continuing, with the latter pledging to cut import tariffs on passenger vehicles to 15%, down from 25%. Import duties on car parts will be reduced to 6%. It comes after Washington froze its proposed Chinese tariffs and looked into lifting the ban on ZTE, while Beijing halted its probe into U.S. sorghum imports and restarted the review of the Qualcomm-NXP deal.
4. U.S. Launches Criminal Probe Into Crypto Manipulation — Bloomberg reports the DOJ is in the early stages of a criminal probe into whether traders are manipulating the price of bitcoin and other cryptocurrencies. It comes amid skepticism that exchanges are actively pursuing cheaters, wild price swings and a lack of regulations. Federal prosecutors are working with the CFTC, a financial regulator that oversees derivatives tied to bitcoin.
5. Trump Cancels Singapore Nuclear Summit with North Korean Leader Kim Jong Un — President Donald Trump canceled his historic nuclear summit with Kim Jong Un late last week, accusing North Korea of “tremendous anger and open hostility.” The news came as North Korea made a show of dismantling a nuclear test site, but also on the heels of some sharp words from the North Korean government about America denuclearization demands.
6. Peak Earnings Growth Follows by Recessions Statistics — courtesy of LPL Reseach (see table below), the average time the market proceeds to recession based on the last 12 earnings growth peaks since 1953 is about 4 years. If this hold true, we could expect a recession in mid-2022 which would make the current U.S. economic expansion the longest ever at 13 years old. Also note that the S&P 500 was up an average of 59% during these periods between the earnings growth peak and the start of the next recession.

The week ahead — Economic data from Econoday.com:

1. N.Korea Expands Threat to Cancel Summit & Plans To Destroy Nuclear Test Site — North Korea is expanding on its threat to cancel the June 12 summit between Kim Jong-un and President Trump. Besides protesting the joint air force drills taking place in South Korea, Pyongyang said the U.S. must stop insisting it “unilaterally” abandon its nuclear program and lashed out at national security advisor John Bolton, who talked about a disarmament similar to “Libya 2004.”. Also, Pyongyang plans to destroy all of the tunnels at the country’s northeastern testing ground with an explosion and remove observation facilities, research posts and ground-based guard units.
2. New Ebola Outbreak Hits Congo — the deadly hemorrhagic disease Ebola has resurfaced again, with the WHO revealing 32 potential cases of the disease (including 18 deaths) in the Democratic Republic of the Congo. Experimental Ebola vaccines are under development, such as leading candidate – Merck’s (NYSE:MRK) rVSV-ZEBOV – but they have not been fully tested for safety or effectiveness.
3. The Supreme Court Ruled New Jersey Can Legalize Sports Gambling — the Supreme Court announced late last week that New Jersey can legalize sports betting in what could be a landmark case in the gaming industry. It clears the way for states, if they choose, to allow gambling on athletic events by striking down the 1992 Professional and Amateur Sports Protection Act, a federal law that said states couldn’t “sponsor, operate, advertise, promote, license, or authorize” sports gambling.
4. More States Sue Over Opioid Epidemic Drug Makers — Litigation against OxyContin maker Purdue Pharma is intensifying as six more U.S. states – Nevada, Texas, Florida, North Carolina, North Dakota and Tennessee – announced lawsuits that accuse the company of fueling a national opioid epidemic. Florida also sued Endo Pharmaceuticals (NASDAQ:ENDP), Allergan (NYSE:AGN), units of Johnson & Johnson (NYSE:JNJ), Teva Pharmaceutical (NYSE:TEVA), and Mallinckrodt (NYSE:MNK), as well as AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH) and McKesson (NYSE:MCK).
5. AAII Weekly Sentiment Survey — In this week’s sentiment survey from AAII, bullish sentiment ticked up to 36.68% from last week’s level of 33.51%. The bulls are back above the average of 36.62% for the current bull market.

in bearish sentiment, which declined for the second straight week, falling from 25.5% down to 20.6%. Since its recent high in early April, bearish sentiment has now been more than cut in half. It’s also at the lowest level since the first week of the year.

6. Small cap Russell 2000 Index and S&P 600 Small Cap Index Hit New All-Time Highs — over the past week, both the small cap Russell 2000 Index and S&P 600 Small Cap Index have recorded not only new bull market highs, but also new all-time highs. Historically, small caps have been among the first stocks to show developing weakness as a bull market enters its final stages; However, these new highs in both the small cap price indexes and Advance-Decline Lines suggest an ongoing and healthy primary uptrend showing few signs of age.

The week ahead — Economic data from Econoday.com:

“If you have an approach that makes money, then money management can make the difference between success and failure… … I try to be conservative in my risk management. I want to make sure I’ll be around to play tomorrow. Risk control is essential.” – Monroe Trout

1. Trump Set to Unveil Drug Price Policy — President Trump’s plan will reportedly require Medicare Part D plans to share a portion of discounts they receive from drug manufacturers with patients, as well as including ways to allow the government to better negotiate. Secretary of Health and Human Services (HHS) Alex Azar stated “We’ll be building on the proposals in the president’s budget, but he wants to go further,” Also, the White House said the HHS will take steps to end the gaming of regulatory and patent processes by drugmakers to unfairly protect monopolies, advance biosimilars and generics, consider whether to include prices in drugmaker ads, and accelerate the approval process for over-the-counter drugs.
2. U.S. Imposes More Sanctions on Venezuela — the U.S. has announced new sanctions on three Venezuelans and 20 companies with ties to President Maduro, whom it blames for a deep recession and hyperinflation that have caused food shortages across Venezuela. Vice President Mike Pence also called for more nations to increase pressure and urged Caracas to suspend a May 20 election he denounced as a “sham.”
3. California Approves Plan to Require Rooftop Solar Power for New Homes — California has become the first U.S. state to require solar panels on nearly all new homes built after Jan. 1, 2020, as part of new energy efficiency standards adopted by the California Energy Commission. While the move is a boost for the solar industry, critics say it will add $8K-$12K to the cost of buying a house in the state. Solar already provides 16% of California’s electricity.
4. President Trump Abandoned a Nuclear Deal with Iran — President Trump abandoned a nuclear deal with Iran and announced the “highest level” of sanctions against the OPEC member. Financial or business activities outlawed by August 6 include exports of airplanes and parts, dollar transactions, trade in gold and other metals, sovereign debt and the auto industry. By November 4, sanctions will ban oil purchases and transactions with the central bank. Furthermore, the U.S. Treasury has imposed penalties on nine Iranian companies and individuals for allegedly operating a currency exchange network that – with the help of Iran’s central bank – transferred millions of dollars to the Iranian Revolutionary Guard’s elite Quds Force.
5. Cumulative Advance/Decline Line Made New All-Time High — the Advance/Decline Line has made a new all-time high with positive expansion in breath. Stocks recording new highs are also suggestive of higher prices even though the stock market is overbought on a near-term basis.

The week ahead — Economic data from Econoday.com:

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” – Jesse Livermore

1. U.S. Delays Tariffs on European Union, Canada and Mexico for 30 days — the Trump administration is delaying a decision about whether to impose steel and aluminum tariffs on the EU, Canada and Mexico until June 1, giving key allies a reprieve as the countries carry out further negotiations. The Iran deal is also on watch.
2. CFTC Chair Comments on Crypto Currency Regulation — according to CFTC Chairman J. Christopher Giancarlo, Bitcoin has “elements of all of the different asset classes,” stating that the popular crypto-currency is part currency, part security and part digital coin. “At the end of the day, it’s for Congress, and not regulators, to decide whether new policies should be evolved for these new asset classes… I don’t see it being resolved any time soon.”.
3. U.S. Trade Team Heads to China — A U.S. delegation led by Treasury Secretary Steven Mnuchin is on its way to China to discuss economic matters and the trade deficit. “Very much like North Korea, this should have been fixed years ago,” President Trump wrote in a tweet. Some economists anticipate that a short-term bargain involving the automobile industry and other previously announced moves could be struck. The yuan has weakened against the U.S. dollar for the fourth straight day with the trade talks just getting started.
4. FOMC Meeting Recap — the Federal Reserve held interest rates steady after its two-day policy meeting and said it will monitor inflation. The policy-making committee used the word “symmetric” twice in relation to its inflation target, in a potential cue to bond traders that a small overshoot past the 2% inflation target will be tolerated. The Fed noted that risks to the economic outlook are roughly balanced. “The FOMC statement reinforced market expectation for another 25 basis points rate rise in its June meeting,” said JPMorgan chief market strategist Tai Hui.
5. Iran Won’t Renegotiate Nuclear Deal — President Trump warns that unless European allies rectify the 2015 nuclear deal’s “terrible flaws” by May 12, he will refuse to extend U.S. sanctions relief for the oil-producing Islamic Republic. Foreign Minister Mohammad Javad Zarif stated that “Iran will not renegotiate what was agreed years ago and has been implemented,”.
6. Berkshire Increased Apple Stake in Q1 by Adding an Additional 75M Apple Shares — Berkshire Hathaway bought 75M additional Apple (NASDAQ:AAPL) shares in Q1, with Warren Buffett outlining that the company “earns almost twice as much as the second most profitable company in the U.S.” The new investment brings its total stake in the tech giant to 240.3M shares worth $42.5B.
7. AAII Weekly Sentiment — according to this week’s sentiment survey from AAII, bullish sentiment declined from 36.91% down to 28.4%. While anything sub-30% is considered low, we actually saw a lower weekly print back in the first half of April, when bullish sentiment dropped down to 26.09%.

While bullish sentiment declined over 8 percentage points, bearish sentiment increased by less than 5 points. At the current level of 30.25%, it is nowhere near its recent high of over 40%.

The week ahead — Economic data from Econoday.com: