Don't look now, but small cap names are picking up steam, powering the Russell 2000 to a new all-time high.  The Blue-Chip Dow Jones Industrial Average however stumbled into the closing bell on Thursday.  There were some earnings disasters, but most of those were stock market over-reaction to guidance or quality of earnings. Consider banks; this week, banks are being punished for sharp declines in loan loss provisions.

RUT

 

There is a tendency to equate small caps of the Russell 2000 with small investors, but that’s not necessarily the case.  In fact, according to the American Association of Individual Investors (AAII), bullishness is now gaining traction when its members are asked about their feelings about the market in the next six months, but still trails those who are neutral. 

Investor Survey	Sentiment	Change
Bullish	35.5%	+7.2%
Neutral	38.7%	-3.4%
Bearish	25.8%	-3.8%

The River of Dreams

In the middle of the night

I go walking in my sleep

From the mountains of faith

To a river so deep

-Billy Joel

Jeff Bezos of Amazon (AMZN) has been singing all the way to the bank for years, riding Amazon to the richest unknown; he is amongst a handful of men that have ever roamed the earth.  From a business point of view, I have always been in awe of Bezos. His swashbuckling ways destroyed Wall Street norms and axioms. He has never been a slave to quarterly earnings.

I’m no fan of his newspaper, but that’s moot when we are discussing building wealth. I think Amazon shares have so much more room to the upside that folks will look back to today, and wished they had bought the stock. By the same token, however, the company is also a wealth destroyer.

Just consider the carnage in the wake of Amazon announcements and its deals this year alone, it would make Joseph Schumpeter blush:

·        Jan 24: Aftermarket Auto Parts

·        May 12: Furniture

·        May 16: Prescription Drugs

·        Jun 12: Groceries (Whole Foods Deal)

·        Jun 22: Sneakers (Nike Deal)

·        Jul 20: Appliances (Sears Deal)

The thing is that Amazon isn’t always successful when it enters industries, but the Street acts as if it will eventually make all supermarkets obsolete. I remember when Whole Foods was the grocery-killer until local supermarkets started to freshen up their look and offerings.

Yesterday’s drubbing of Home Depot (HD) and Whirlpool (WHR) was plain nuts.  Those stocks are buys on dips.

At some point, Amazon will have showdowns on both sides of the Atlantic when regulators start demanding that the company break itself up.  It will be harder than it seems to the regulators deciding what Amazon might have to sell through its platform. 

Amazon is a mountain of faith, and it deserves such accolades. However, don’t instantly write-off juggernauts with global footprints and long histories of competitiveness. Also, don’t forget that Amazon recently had to shutter its Diapers.com site and had to bite the bullet on a $500 million investment.  Hence, stay invested in Amazon, but don’t panic about other quality names in your portfolio.

Technical Lesson

There are times when the direction of the chart can have more influence on share price than fundamentals. I think it was the case with Snap-on (SNA) Tools; it barely missed on revenue, but it was slammed nonetheless.

  I got a few questions about SNA stock on Twitter and made a few observations, which led Richard to tweet:

Richard‏ @BMW45ACP 

Replying to @cvpayne

@sappcms: What are you guys talking about? Can you break it down for a simpleton like me? "series of lower lows", "probably reversal," etc.?

Down Channel:  Stocks often form channels with distinctive resistance and support points. In the case of SNA, the stock continues to make lower highs and lower lows – hence, a down channel.  

Support: In this case, if $150 doesn’t hold, we would probably see a re-test of the 52-week low, which would take the stock to $145.00 a share.

Buy Points:  A reverse on the chart happens when the stock bounces off the bottom of the channel (trading bounce). However, it also happens with conviction when the stock breaks through the top of the channel and closes there.  This is especially a buy signal; it happens with better than expected volume.

  

Today’s Session

The rally looks tired, which is only natural. But the argument for it got substantially stronger this week, so was the argument that the US economy is shifting into a higher gear.

Key Earnings Results

Visa beat the street on revenue and earnings with volume gains around the world, but most particularly in the United States where credit card volume soared driven by more confident millennials.

Card Usage	Volume Billion (USD)	Change Constant Currency
Asia	531	+1.7%
Canada	64	+6.8%
CEMEA	259	+6.7%
LAC	248	+8.1%
US	980	+10.9
-Credit	460	+17.9%
-Debit	519	+5.4%

Kansas City Southern (KSU) beat the street with record second quarter revenue and earnings per share and all-time record for operating income.  Margins were impacted by higher fuel and materials costs but it was a great quarter on volume, carloads and pricing power.  Autos were a pleasant surprise (I continue to hear dealers are hiding cars on back lots so will retain a little skepticism) and energy popped especially frac sand.

Select Business Segments	Revenue Millions USD	Carloads
Auto	57.5 +29%	37,900 +23%
Utility Coal	39.0 +102%	38,400 +47%
Frac Sand	14.0 +141%	8,700 +93%

Comments

My wife and I really miss you at 6PM. We feel that this matter concerns you and your family and I am sure it has been difficult for you.If these fake moralists at FOX keep making these political decisions,they will lose their core audience. Interesting that we do not hear about Bill O'Reilly's situation now that his enemies have accomplished their goals.You have many fans who support you! Mitchell Jay Herman on 7/21/2017 11:03:52 AM

Malls will make a comeback when they innovate. The design of today's malls goes back to the '50's and '60's. How about moving sidewalks that take the legwork out of transiting acres of mall real estate? You don't have turn them into little Disneylands. Just make 'em a lot easier to access and egress. Shopping is in our genes like hunting & gathering, but retailers have to make it interesting. Standing on line at Walmart is like being condemned to 100 years in Purgatory. Or hell -- your choice. Ditto for automatic checkouts. People want to deal with people. Not robots. But now I have to prove I'm not a robot. Charley Payne must agree with me. Dennis Howard mbaforlife@gmail.com on 7/21/2017 11:56:34 AM

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