The Averages (DJIA 25289, S&P 2730) experienced another roller coaster day, this time closing up. The Dow ended below its 100 DMA (now resistance) and above its 200 DMA (now support).
The S&P finished below its 100 DMA (now resistance), below its 200 DMA, (now resistance) nut bounced off the lower boundary of its short term uptrend.
As I noted yesterday, the indices closing both gap opens removed a major resistance factor. With yesterday’s bounce, both charts began building a reverse head and shoulders formation---the technical maxim being that this pattern is a sign of higher prices. While more follow through to the upside is needed to complete this pattern, all of the recent pin action seems to be setting up for the seasonal Santa Claus rally---‘seems to be’ being the operative phrase. The S&P has to advance almost 100 points to complete this formation; so a challenge of its all-time high and/or the upper boundary of its long term uptrend is by no means a lock at this point.
Volume rose; breadth improved.
The VIX fell 6%, but again that was a bit tame for a day in which the Dow had a 500+ point intraday swing. It remains technically strong: above both MA’s and within a short term uptrend.
The long bond was down fractionally. It appears to be trying to build a base very short term but still finished below both moving averages and in a short term downtrend.
The dollar was up slightly, remaining technically strong. I remain of the opinion that UUP will move higher as long as the dollar funding problem persists.
GLD was up, but not enough to challenge any resistance levels (the 100 DMA being the closest).
Bottom line: we got the upside follow through that Wednesday’s pin action set up. So now the chances of a year-end Santa Claus rally have gone up. A further price advance will push those odds up.
TLT and UUP were again amazingly docile on a wild stock day; GLD was up a little but not enough to improve an otherwise ugly chart.
Thursday in the charts.
Lots of economic data released yesterday, basically mixed: on the plus side: September business inventories/sales, October retail sales and the November NY Fed manufacturing index; on the negative side: weekly jobless claims, October import/export prices and the November Philly Fed manufacturing index.
Of course, the most important number was the positive October retail sales report because it is a primary indicator. However, those rising import/export figures point to higher prices which won’t be lost on the Fed.
There was one datapoint from overseas: October UK retail sales were disappointing, adding to the generally lousy trend in stats this week.
The main headline of the day was a back and forth among US trade officials on whether or not the US is lowering the pressure on the Chinese.
First, there was a report attributed to trade chief Lighthizer that the US was delaying the schedule for tariff implementation.
Followed by---who’s on first?
It may be just coincidence, but it seems like the only time the administration releases positive trade news is when stocks are down.
Bottom line: if I am correct, Trump is attempting to change the US/Chinese trade paradigm in which China was brought into the modern world by overlooking its theft of US intellectual property and being granted favorable trade terms. That battle to reverse that model hasn’t been and probably will continue not be an easy one---whatever occurs at the G20 meeting.
Of course, Trump can always relent and accept something less than he appears to be trying achieve. Initially, it would be a plus because it would remove current uncertainty. But in the long run, it would be a negative. So like fixing fiscal policy (too much deficit spending) and monetary policy (the mispricing and misallocation of assets), ignoring the ultimate consequences of failed policy would be the easy way out. If he settles for anything like NAFTA 2.0, a lot of heartburn will have been for naught.
On the other hand, the Chinese could fold like a cheap tent; though history suggests that this is wishful thinking.
In the end, I don’t see any painless resolution to this problem. There is either a faux deal and the IP theft continues or this remains a twelve round cage match.
Of course, I could be dead wrong.
The latest from Jeff Gundlach.
News on Stocks in Our Portfolios
PepsiCo (NYSE:PEP) declares $0.9275/share quarterly dividend, in line with previous.
Nike (NYSE:NKE) declares $0.22/share quarterly dividend, 10% increase from prior dividend of $0.20.
Kimberly-Clark (NYSE:KMB) declares $1.00/share quarterly dividend, in line with previous.
Home Depot (NYSE:HD) declares $1.03/share quarterly dividend, in line with previous.
Tiffany (NYSE:TIF) declares $0.55/share quarterly dividend, in line with previous.
This Week’s Data
September business inventories rose 0.3%, in line; but sales were up 0.4%.
October EU new car sales fell 7.4%.
More on student debt, the failed social experiment.
***overnight in the Brexit melodrama
What I am reading today
Trouble in crypto land.
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