Friday, February 15, 2019

The Morning Call--Another Fed governor goes dovish


The Morning Call

2/15/19

The Market
         
    Technical

The Averages (DJIA 25439, S&P 2745) took a rest yesterday.  The Dow ended above its 100 DMA for the third day, reverting to support and above its 200 DMA (now support) but below the lower boundary of its newly reset very short term uptrend (if it closes below this boundary today, it will be voided).  The S&P remained in a very short term uptrend, above its 100 DMA (now support) but closed right on its 200 DMA (now resistance), stopping the clock on this challenge.   Both remain below their previous lower highs (~25977, 2800).

Volume rose (this is option expiration week; so an increase in volume and volatility is to be expected) and breadth was weak.

The VIX was up another 3 ½%, continuing its bounce off the lower boundary of its short term uptrend.  But it remains below both MA’s (now resistance).

The long bond was up ½%, finishing above both MA’s, in short and intermediate-term trading ranges.  In addition, it ended back above the lower boundary of its very short-term uptrend, negating Wednesday’s break.
           
The dollar was down three cents, finishing above both MA’s, in a short-term uptrend and above the upper boundary of its mid-November to present consolidation phase---suggesting renewed momentum to the upside. 

GLD rose ½%, closing above both MA’s (the 100 DMA is crossing above its 200 DMA---a positive technical signal) and within very short-term and short-term uptrends.  

 Bottom line: the Averages paused yesterday but held up fairly well in the face of some negative headlines.  It was a bit disappointing that there wasn’t additional follow through from Tuesday’s and Wednesday’s move up.  But I see no reason why they won’t at least challenge their prior lower highs.

          The dollar, bonds and gold seem to be attracting ‘safety trade’ investors even though their daily activity is not always consistent.

            Thursday in the charts.

    Fundamental

       Headlines

            The dataflow this week continues to be dismal: weekly jobless, November business inventories/sales and December retail sales were poor while the January PPI headline and ex food and energy readings were mixed.

            As a caveat to the retail sales (primary indicator) number, the pundit narrative was dominated by apologists explaining all the reasons why there were seasonal/technical factors that mitigated its lousy report.  Assuming that is true, I think it a stretch to assume that there wasn’t any bad news in this stat.

            Overseas, the data was somewhat mixed: Q4 EU GDP was in line, Q4 German GDP was short of estimates; January Chinese exports soared while imports were down.

            In other news:

(1)   Trump decided to sign ‘the wall’/shutdown bill but apparently intends to declare a national emergency to obtain further funding.  That will likely generate yet another political standoff with the dems.

                  ***overnight,

(2)   China appears to be holding tough on forced technology transfers.

***overnight, there was a lot of happy talk from both sides about continuing negotiations.  However, Xi made it clear that it didn’t include IP theft.

(3)   and, last but not least, another Fed official goes dovish.

            Bottom line: (1) the economic data continues to point to a slowing economy.  (2) Trump may sign ‘the wall’/shutdown legislation but [a] I never thought that this was going to have an impact on the economy and [b] the political standoff will apparently continue if he declares a national emergency.  (3) I have been a sceptic regarding any early Chinese capitulation on IP theft.  Yesterday’s headline confirms that.  I continue to think that the only way there is a US/Chinese trade agreement is if Trump folds.  (4)  Offsetting all this is what appears to be the re-establishment of the Fed ‘put’.  That ‘put’ has been sufficient to overwhelm almost all negative headlines for the last decade.  While I believe that this too will end, my assumption is that it will continue until a trigger event stops it.

            As prices move up, my strategy is to Sell Half of any holding when the stock price enters that Range.


    News on Stocks in Our Portfolios
 
Nike (NYSE:NKE) declares $0.22/share quarterly dividend, in line with previous.

PepsiCo (NYSE:PEP): Q4 Non-GAAP EPS of $1.49 in-line; GAAP EPS of $4.83.
Revenue of $19.52B (-0.1% Y/Y) in-line.
Economics

   This Week’s Data

      US

            November business inventories fell 0.1% versus expectations of a 0.2% increase; worse, sales declined 0.3%.

            The February NY Fed manufacturing index came in at 8.8 versus consensus of 7.6.

            January import prices declined 0.5% versus estimates of unchanged; exports prices dropped 0.6% versus forecasts of up 0.1%.

     International

            January Chinese CPI rose 0.5% versus December’s reading of unchanged; PPI was -0.6% versus -1.0%.

            The January Chinese all-system aggregate financings hit a new high, i.e. credit/liquidity expansion.

    Other

            Is the Fed insolvent?

            More on auto loans (delinquencies).

            January LA port traffic.

            Short money rules.

            Latest on Brexit.

What I am reading today

            Questions and answers regarding your 2018 tax bill/refund.
                        https://www.nytimes.com/2019/02/13/business/tax-return-questions.html

            Why you might want to consider not taking social security at 65.

            The Green New Deal.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Thursday, February 14, 2019

The Morning Call---Everything is awesome except the numbers


The Morning Call

2/14/19

The Market
         
    Technical

The Averages (DJIA 25543, S&P 2753) staged a solid follow through from Tuesday’s big day.  Their pin action versus their MA’s are getting back in sync:  the Dow ended above its 100 DMA for the second day (now resistance; if it remains there through the close today, it will revert to support) and above its 200 DMA; the S&P is above its 100 DMA (now support) and above its 200 DMA (now resistance; if it remains there through the close on Monday, it will revert to support).  In addition, both re-established very short term uptrends.  The next resistance levels that I am watching are their previous lower highs (~25977, 2800).

However, volume was lower volume and breadth mixed.

The VIX rebounded 1 ½% (not usual for a convincing up Market day), bouncing off the lower boundary of its short term uptrend.  But it remains below both MA’s (now resistance).

The long bond was down, but finished above both MA’s, in short and intermediate-term trading ranges.  However, it ended below the lower boundary of its very short-term uptrend; if it remains there through the close today, the trend will be voided.
           
The dollar was up ½%, finishing above both MA’s, in a short-term uptrend and above the upper boundary of its mid-November to present consolidation phase---suggesting renewed momentum to the upside. 

GLD declined but its chart remains strong, closing above both MA’s, within very short-term and short-term uptrends.  

 Bottom line: the Averages had another good day, resetting their very short term uptrends.  So, upside momentum seems to have been re-established---a little more follow through is needed to be convincing.  Their next challenge is surpassing their prior lower highs.

          The dollar, bonds and gold seem to be attracting ‘safety trade’ investors even though their daily activity is not always consistent.

Wednesday in the charts.

            Corporations continue to be big buyers of their own stock.

    Fundamental

       Headlines
                     
Yesterday’s economic data again tilted negative: weekly mortgage applications and purchase applications were down, the December budget deficit was larger than expected but January CPI unchanged. 

Overseas, December EU industrial production fell more than anticipated.

Otherwise a relatively quiet day.

Bottom line: the dataflow continues to support the proposition that the US economy is slowing and that the global economy may be in danger of going into recession.  However, Markets seem more focused on the potential easing in monetary policy by the major central banks---and small wonder.  QE’s have been a boon to asset prices for a decade.  So, expectations seem to be that this time monetary easing will have a similar impact. 

If so, then I will be watching our Portfolios’ stocks should any trade into their Sell Half Range and act accordingly.
           
    News on Stocks in Our Portfolios
 
Sherwin Williams (NYSE:SHW) declares $1.13/share quarterly dividend, 31% increase from prior dividend of $0.86.
                  
Coca-Cola (NYSE:KO): Q4 Non-GAAP EPS of $0.43 in-line; GAAP EPS of $0.18 misses by $0.25.
Revenue of $7.1B (-5.5% Y/Y) beats by $30M.

EOG Resources (NYSE:EOG) declares $0.22/share quarterly dividend, in line with previous.

PepsiCo (NYSE:PEP) declares $0.9275/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

   
            And.

            Plus, the government is not the only one getting in over its head.

            Weekly jobless claims rose 4,000 versus consensus of -9,000.

            January PPI fell 0.1% versus projections of +0.2%; ex food and energy, it rose 0.3% versus expectations of up 0.2%.

            December retail sales declined 1.2% versus expectations of a 0.1% increase; ex autos, they dropped 1.8% versus estimates of no change.

 International

            Q4 EU flash GDP showed growth of 0.2%, in line; the German flash GDP was flat versus forecasts of +0.1%.

                January Chinese exports jumped 9.1% versus an anticipated decline while imports fell 1.5%.

    Other
              
            A trade war win may not be all that great for the Market.

            Update on Bank of China liquidity operations.

            Baltic Dry Index collapsing.

What I am reading today

            Quote of the day.
                       

                        How to wreck a pension plan in three easy steps.
               
                Libertarian fantasies about cryptocurrencies

            Why we lie.

                
Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Wednesday, February 13, 2019

The Morning Call--Everything coming up roses


The Morning Call

2/13/19

The Market
         
    Technical

The Averages (DJIA 25425, S&P 2744) had a blockbuster day.  Their pin action versus their MA’s remains a bit out of sync:  the Dow ended back above its 100 DMA (now resistance; if it remains there through the close on Thursday, it will revert to support) and above its 200 DMA; the S&P is above its 100 DMA (now support) and right on its 200 DMA (now resistance).  Both recently voided their very short term uptrends but still haven’t surpassed their prior lower highs. 

Volume rose; but surprisingly breadth was mixed.

The VIX fell 3 ¼%, finishing below both MA’s (now resistance) but is still in a short term uptrend.

The long bond was down, but remained above both MA’s, in short and intermediate-term trading ranges and in a very short-term uptrend.

The dollar declined but ended above both MA’s and in a short-term uptrend.  It did retreat from the upper boundary of its mid-November to present consolidation phase. 

GLD rose, closing above both MA’s, within very short-term and short-term uptrends.

 Bottom line: so much for lost upward momentum.  The Averages did a moonshot yesterday, though they (1) are only back to last week’s highs and (2) are still some distance away from topping their last lower high.  Follow through is the key at this point.

          The dollar, bonds and gold seem to be attracting ‘safety trade’ investors even though their daily activity is not always consistent.

            For those of you interested in Elliott Wave analysis.

            Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s data releases were weighed to the negative: the January small business optimism index was disappointing as were month to date retail chain store sales; on the other hand, the December job openings report was strong.  Nothing overseas.

            There were three headlines yesterday, two of which I covered in Tuesday’s Morning Call:

(1)   a potential compromise in congress on ‘the wall’/government shutdown issue,

***overnight, CNN reports that Trump will sign legislation.


       How government shutdowns impact the economy.

(2)   hopeful noises out of Trump and the Chinese regarding a trade agreement.

***overnight, Xi said that he will join current talks as a sign of goodwill.

            The third was the release of a senate finding that there was no Trump/Russia collusion.

                Bottom line: in the long term scheme of things, I don’t think that ‘the wall’/shutdown issue will be that impactful on economic/corporate growth.  Nor do I think that Trump/Russia collusion debate is anything more than partisan politics---given the information we now have.

            A trade deal with China (assuming there is any give on their part) would be a plus; though the Chinese were perfecting the ‘art of the deal’ centuries ago.  So, I think that extracting real change in industrial policy out of these guys will take a lot longer (if at all) than seems to be built into investor hopes right now. 

            Meanwhile, in my opinion, the economy is not as strong as many believe (or as the Fed claims it to be).  Plus, corporate earnings appear to be set for a rough ride; not helping are a weakening global economy and a strong dollar.

            Finally, QE II, III and IV never did that much to improve the economy, so if the economy does go into a recession (remember that is not my forecast) QE V won’t either.  The problem is that given that the Fed waited far too long to begin normalizing monetary policy and has barely began to shrink its balance sheet, any new infusion from a QE V will likely be meaningless to the economy. 

            ***last night, an FOMC governor a plan for tapering the Fed’s balance sheet runoff will be discussed.

On the other hand, all those past QE’s were highly beneficial to asset prices; and given the Fed hesitancy to do anything Market unfriendly (and as I continually point out, nowhere in the Fed mandate is keeping investors happy), QE V could push asset prices higher. 

However, remember that asset misallocation was also part of that equation; and currently signs abound (see below) that the time may be at hand at which the chickens of asset misallocation maybe coming home to roost, i.e. defaults arising from too much debt being assumed to pay for marginally profitable investments.  That said, so far, investors are paying little attention to these developments.
      
            More on the Chinese debt (default) problem.

                More on the EU banking system’s problems.
               
                And even more.

            More on a possible earnings recession.

    News on Stocks in Our Portfolios
 
            Cummins (NYSE:CMI) declares $1.14/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

Month to date retail chain store sales grew at a slower pace than in the prior week.

December job openings stood at 7.3 million versus expectations of 6.9 million.

          Weekly mortgage applications declined 3.7% while purchase applications were down 6.0%.

            January CPI came in unchanged versus forecasts of up 0.1%; ex food and energy, it was up o.2%, in line.

     International

            December EU industrial production fell 0.9% versus estimates of -0.4%.

    Other

            The looming entitlement problem.

                The value of Chinese/US trade is shrinking.

               
                Total household debt continues to grow.

What I am reading today

            The biggest economic divides are regional, there are local.
           

                        Eleven facts about Blazing Saddles on its 45th birthday.

                US/EU to impose additional sanctions on Russia.
           

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Tuesday, February 12, 2019

The Morning Call--the Fed is still the problem


The Morning Call

2/12/19

The Market
         
    Technical

The Averages (DJIA 25053, S&P 2709) had a mixed day (Dow down, S&P up).  Their pin action versus their MA’s is at odds:  the Dow is below its 100 DMA (after a failed challenge) and right on its 200 DMA; the S&P is above its 100 DMA and below its 200 DMA.  Both recently voided their very short term uptrends, were unable to surpass their prior lower highs but remain in short term trading ranges. 

Volume declined; breadth was weak.

The VIX was up 1 ½%, finishing below both MA’s (now resistance) but in a short term uptrend.

The long bond was down, but remained above both MA’s, in short and intermediate-term trading ranges and in a very short-term uptrend.
           
The dollar advanced, closing above both MA’s, in a short-term uptrend and at the upper boundary of that mid-November to present consolidation phase. 

GLD was down, but still ended well above both MA’s, within very short-term and short-term uptrends.

 Bottom line: the Averages have voided their very short term uptrends and stalled at the levels of their MA’s, suggesting that they have lost upward momentum.  I am not inferring some dramatic selloff (though as you know, I think that there is one in our not too distant future); rather some weakness to test recent support levels.  At the moment, I am watching to see if indices can trade above their prior lower highs or if they decide to challenge their late December lows.

How the Markets handle the positive overnight news (see below) should give us some directional information.

          The dollar, bonds and gold seem to be attracting ‘safety trade’ investors even though their daily activity is not always consistent.
           
            Monday in the charts.

    Fundamental

       Headlines

            No US economic data releases yesterday.  Overseas, we got a few negative stats out of the UK which I give less emphasis to than EU numbers due to the uncertainty surrounding the Brexit issue.
           
            I noted in yesterday’s Morning Call, the recent return of the Fed put.  That may make the Markets happy for a short time.  However, the problem is that the Fed has raised rates and shrunk its balance sheet so little, that there is not much room for monetary stimulus if the global (US?) economy rolls over.

            And:

            I also mentioned that that fourth quarter earnings/first quarter guidance has been disappointing.  Morgan Stanley addressed that issue yesterday.
           
            Bottom line: the US economy is slowing (not declining) while the rest of the world appears to be decelerating at a much more rapid pace.  I continue to believe that the US can avoid a recession though that may not make any difference if corporate earnings fall as many increasingly believe that they will.

            Fed policy remains a problem.  Either it will continue to shrink its balance sheet which will do little to harm the economy but induce pain for the Markets; or it will continue kowtow to the Market and then be forced to admit that it has little ammo when, as and if it can no longer ignore the fact that the economy is not doing half as well as it has been pretending.

            The latest most crowded trade.

            ***overnight,

(1)   congressional leaders have apparently reached a compromise on the border wall funding/government shutdown issue [though the funds for building ‘the wall’ are woefully short of Trump’s demands]

(2)   Trump again said that he wants a meeting with Xi to resolve trade issues


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            The January small business optimism index was reported at 101.2 versus estimates of 103.0

     International

    Other

            Why the US debt will continue to rise.  This is a bit long but addresses the issue on which I keep harping---the increase level of debt constrains economic growth.

            The February business cycle chart book.

            A new fight in Italy; this time over who owns the country’s gold reserves.

            Two Chinese industrial giants are now in default.

            While Deutschebank has its own problems.

What I am reading today

            1000 scientists have signed a dissent questioning Darwin theory of evolution.

                This year’s tax refunds may not be as big as many think.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.