New market thoughts from Raymond James’ Jeff Saut: “A Licking?!” 05/31/18

“It takes a licking and keeps on ticking!”
. . . John Cameron Swayze, the pitchman from the 1950s for a Timex watch commercial.
In my misbegotten youth (1950s) there was a Timex wristwatch commercial featuring pitchman John Cameron Swayze, which went, “It takes a licking and keeps on ticking!” According to Pop History Dig:
“The Timex “torture test” advertising was also used in TV ads, a series made popular by celebrity newscaster John Cameron Swayze who hosted the spots. A number of these ads also featured sports celebrities who doled out the tough treatment to the watches and/or supplied an endorsing statement. Swayze also hosted non-celebrity Timex ads in which the watch would be subject to other trials – whether placed in a washing machine or attached to the bow of a speed boat (Timex).”
Since the February 9, 2018’s “undercut low” the same can be said of the stock market, “It takes a licking and keeps on ticking.” For sure, we identified that 2/9/18 “undercut low” and recommended recommitting some of the cash raise in January in anticipation of a February Flop. Ever since then most of the one-day “wonder declines” have been followed by decent rallies; this week was no exception as Tuesday’s Tumble was followed by Wednesday’s Win!
The cause proxima for this week’s two-day two-step was mainly Italy, with a dose of Spain’s political troubles mixed into the equation. As Tom Essaye writes in his daily must have “Sevens Report:”
“First, for a bit of background, in March, during the last Italian general election, two “anti-establishment” parties, 5-Star Movement and the League, received the highest numbers of votes. That caused some concern that if the two parties were able to form a functioning government, they might ultimately introduce a Brexit-style referendum to leave the EU. Over the past few weeks, the League and 5-Star Movement (along with other smaller parties) have come close to reaching an agreement on forming a functioning government, and that raised “Italexit” fears last week.”
“Those fears were intensified over the weekend as the situation came to a head. Specifically, the two parties nominated an anti-EU economist as finance minister-further stoking fears of an “Italiexit” referendum. Just like in the U.S., the Senate has to approve some presidential appointments, in Italy the President of the Republic must also approve of cabinet members. This weekend, the President of the Republic vetoed the financial minister appointment on the grounds that the Italian Constitution says Italy is in the EU. That, in turn, sent the negotiations to form a government into a tailspin, and now it is likely the Italian Parliament will vote “no confidence” this week, and national elections will be called.”
As often mentioned, such “news noise” tends to have only a short-term impact on the stock market and we think it is no different this time. Indeed, the Panic Plunge by the S&P 500 this week was arrested in the 2670 – 2685 zone so often mentioned in the missives as a major support. Also as mentioned, the internal energy mix goes back to a positive level today and while there may be another small downside test, we do not think it gathers any traction. Verily, our models suggest a big bounce is coming and we continue to think it will be to new all-time highs. As SentimenTrader’s Jason Goepfert notes: “This is kind of what panic looks like. Tuesday’s post-holiday sell-off saw one of the largest intraday spikes in uncertainty on record. The VIX jumped more than 40% at its high during the day, the 17th-largest spike out of 7,153 trading days. Stocks tended to rally strongly after other large spikes in the VIX, especially longer-term.”
This morning the preopening futures are flat as Italy awaits a decision on last-ditch efforts to avoid a snap election and sources suggests the U.S. is set to slap steel and aluminum tariffs on the EU.

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