Bob Lang and Chris Versace explain their approach to the markets.
Chris breaks down the data he's watching and the fundamental approach to Ford (F) .
Bob takes a look at the oscillators and the chart of F.
KATHERINE ROSS: Good morning, Action Alerts Plus members. It's Thursday, June 30. Chris, we got PCE data today. And it shows that it fell, as expected. But what does this data actually mean?
CHRIS VERSACE: When we parse the data, both the PCE price index as well as the personal income and spending, it shows exactly what a lot of us has been suspecting, that consumers are feeling the pinch of the robust inflationary prices that we've been talking about, which even after the May PCE price index data, still remain at elevated levels. Really comparing and contrasting the May data, personal spending up only 0.2%.
But when we take a look at the PCE headline, up plus 0.6%, or even the core, the reality is the consumers are still spending. But they're getting less. And that's going to be a very tough issue for a variety of retailers that are already struggling with bloated inventories to contend with. And as we saw this morning, RH warned for the second time I believe, in almost a month, it's going to be very painful for certain sectors of the economy, no question about it.
KATHERINE ROSS: And Bob, how are you looking at the market here?
BOB LANG: Well, we've fallen through the lows from the other day. And, really, we made lower highs and lower lows the last three days. And of course, Tuesday was a disaster for the bulls. It was a big huge reversal. But I think that, as I mentioned the other day, this is a bear market. And we have to understand that low levels are going to be traced out and retouched.
The one that I'm really looking forward to touching would be the June 10 low. Comes in at about 3,640 on the S&P 500. Maybe a little bit lower than that. And we'll see if there are any sellers down there. If there are, then we're probably going to be going further lower, maybe down towards 3,500. Ultimately, I think the prepandemic high comes in at about 3,393 on the S&P 500. Seems like a long way to go down. But, frankly, again, in a bear market, you see lower levels touched very easily and very quickly. But volatility is with us here. So we have to be mindful of that.
KATHERINE ROSS: Yesterday, Bob, I spoke to a few traders who think that we could actually see a rally tomorrow into this long weekend. Though our Real Money contributor Stephen Guilfoyle wasn't so sure. What kind of reading are you getting?
BOB LANG: Well, if I just take a look at the oscillators here in the put-call ratio, a couple of indicators that I follow pretty closely, they're not giving me any good read on a rally tomorrow. In fact, even though it is the first day of the month and we're in front of a three-day holiday, I mean, could we get a little bit of relief off of today's drop? Sure. But you know what, we're down again for the week. We were up strong last week. It was only the second up week in 12. We had 10 down weeks out of 12 weeks. That's almost a whole quarter.
We're going to be down again this week. Even if we get a rally tomorrow, it's got to be a monster rally just for us to break even on the week. So I don't really see how that's going to materialize. And frankly, with the potential headline drops over the weekend, over the long weekend, why would anybody want to be long in this market, especially when the S&P 500 chart is heading down lower towards those levels at 3,640?
KATHERINE ROSS: And Chris, ahead of this weekend, what are you going to be watching here? And what kind of action would you be looking to take?
CHRIS VERSACE: So we have a lot of data that we'll be getting between today and tomorrow. And that's really going to reframe the landscape. Remember, we've been kind of caught between this inflation, slow growth recession narrative that's in the market.
And what we get between the balance of today and tomorrow with the ISM manufacturing numbers, the final read on the S&P-- excuse me, S&P Global June manufacturing PMI. That's really going to tell us what the second quarter is going to look like and give us the first real hard look at how we're going to start off the September quarter. But in addition to that, we're also going to be keeping our ear to the ground very, very closely for any type of preannouncements, positive or negative, that we might hear and what that means for the upcoming earnings season.
The last few days, we've gotten some companies that have reported, including our own McCormick's and Co., which reminded us that a number of factors that have unfolded during the June quarter may not have been fully baked into earnings expectations even though they've been baked into stock prices. And I think paying attention to that and recalibrating what our expectations are likely to be as the earnings season heats up, that's-- not only the end of this week, but increasingly in next week, that's what we'll be focused on.
KATHERINE ROSS: Now let's get stock specific because Ford today is taking a beating, Chris. Has your approach to this stock changed at all?
CHRIS VERSACE: So the landscape always changes as more data becomes available. I know that's not necessarily the popular view. But that's the reality of the situation. And as we get more data that points to a potential slowdown, odds are the expectations are going to be that, wow, fewer people are going to be buying cars. And that of course is going to weigh on Ford.
But the balance here is determining how much those expectations will have to come in as we move through the second half of the year and supply for autos actually continues to improve. There's also the other issue of Ford's ongoing transformation, which as we've been covering in the roundups with members, they continue to make active progress on.
So I think at some point the reality is that Ford will be selling more cars, more EVs. That's a positive for us. But I think that the concern we have to increasingly factor into our thinking is at the margin consumer spending for autos might slow. More than likely, it means we're going to keep our two rating intact. But we will probably revisit our price target.
KATHERINE ROSS: And Bob, what do the technicals tell you about potential action in this name?
BOB LANG: Very tough chart here. And the stock has just been making a series of lower highs and lower lows for the past several months, peaking in January. The stock's almost down 65% to 70% from the highs back in the early part of the year. And it really is indicative of what's happening in the economy here. This is an industrial that is showing that the economy is going to be slowing down over the next several months, maybe a couple of years.
And, unfortunately, Ford is right in the crosshairs of industrials and consumer spending. And, of course, their suppliers are jacking up prices because of the inflation and supply chain problems. So it's a difficult situation for Ford. They do support their dividend. They are a strong dividend payer. And we'll see if they happen to make some changes on that front. We hope not.
But, certainly, it's a tough chart. The stock is way oversold right now. At 10 bucks, I think it's still a good value right here. But, listen, the charts are telling you that the stock is weak. And it's going to be difficult to jump in here and buy this. We've got to move back above 12, 12 and 1/2, though. I think it's game back on for Ford.
KATHERINE ROSS: All right, members. Please continue send your member questions into Katherine.Ross@thestreet.com. And we'll see you tomorrow.