Stocks were largely flat Monday near their record highs, though the S&P 500 ‘s wafer-thin 0.01% decline broke a six-day streak of gains. News flow was modest on both the economic and geopolitical front, as most of the motivation for traders appeared to stem from more merger activity and betting on the next dominoes to fall in the assault by Sunni militants on the government of Iraq.
The economic data were largely positive in the United States and China but disappointing in the eurozone, where snapshots of manufacturing and services were below consensus.
The U.S. data came partly in the form of a flash Markit PMI that showed factories are chugging along at their best pace since May of 2010. Additionally, we learned that existing home sales in May were better than expected at a 4.89 million seasonally adjusted annual rate versus the consensus of 4.75 million and April’s reading of 4.66 million.
The China manufacturing data showed that manufacturing improved to the best level in six months, with seven often sub-indices breaking above the critical 50-line and showing improved output, new orders and new export orders.
Over in Iraq, fighting raged on in the north between the largely ragtag government forces and reportedly more disciplined Sunni militia grouped together under the Islamic State of Iraq and Syria banner. Media reports suggested that ISIS was seeking to gain control of Syrian and Jordanian border crossings so that they can bring arms more easily down from the largely lawless northern territories to apply to their fight in Iraq. The Sunni extremists were also said to be preparing to take control of Haditha Dam, which controls much of Iraq’s power grid. Sounds like a classic guerilla siege tactic.
The most prominent additional new brokerage economic analysis that matters to investors came from inflation studies. A number of articles in the media expressed concerns that an increase in inflation could cause the Fed to move more quickly than is currently expected. Most seem to think that inflation should remain relatively tame even though price pressures may be rising.
While severe inflation is not expected, it is notable that there have been some signs of increasing wage pressures. Note that in Seattle where I live, for instance, the City Council just voted to push the minimum wage to $15.00 during the next seven years, with the first increment of that plan starting soon.
The bond market, however, is suggesting that fixed-income investors are more sanguine about the long-term inflation outlook. The subject is receiving increased attention ahead of the producer price data scheduled for Thursday. Financial stocks are performing well, which is another indication that investors are less concerned than the media about these economic developments.
So, for now I remained positioned in bullish trades, and I have a new stock for you today.
A10 Networks (ATEN) primarily makes software-based application delivery controllers, which are the critical bits of code that optimize data-center performance. If you have a cloud-based software service, or a business like Netflix (NFLX) that provides tens of thousands of streaming videos at a time, you need controllers that act like a maitre d’, deciding which servers are the most underutilized at any time and ensuring that they are given the next tasks.
A10 is like a software version of the ADC boxes that made F5 Networks (FFIV) into an $8 billion company. A10 is just a baby, at a $762 million market cap, and having gone public into the tough climate of mid-March.
The shares rose 1.3% Monday, closing near their high for the session. They are getting ready to move much higher, so buy ATEN at current levels, with ideal entries at or below $12.75.
I have an initial target for ATEN of $13.65. But place a stop loss to exit at $12.15, good after 11 a.m. ET only.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
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