Friday, November 16, 2018

The Morning Call--Now the most important thing is follow through


The Morning Call

11/16/18

The Market
         
    Technical

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.

            And:

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.

    Fundamental

       Headlines

            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.

Economics

   This Week’s Data

      US

            September business inventories rose 0.3%, in line; but sales were up 0.4%.

     International

            October EU new car sales fell 7.4%.

    Other

            More on student debt, the failed social experiment.

            ***overnight in the Brexit melodrama


What I am reading today

            Trouble in crypto land.



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




Thursday, November 15, 2018

The Morning Call--There were some positives in yesterday's dismal performance


The Morning Call

11/15/18

The Market
         
    Technical

Averages (DJIA 25080, S&P 2701) swung mightily through the day, closing to the downside.   The Dow ended below its 100 DMA for a third day (reverting to resistance), right on its 200 DMA (now support) and, intraday, closed the initial gap open.

The S&P finished below its 100 DMA (now resistance), below its 200 DMA, (now resistance), right on the lower boundary of its short term uptrend and, like the Dow, intraday, closed the initial gap open.  I have included the chart because it illustrates one those technical maxims that actually performs exactly as the maxim indicates (many times they don’t).  You can see that the S&P declined right to the point that the gap is closed and then bounced. 

The first step of my (technical) operating thesis has occurred, i.e. that the Averages will close their initial gap opens in order to advance on their all-time highs and the upper boundaries of their long term uptrends on the back of seasonal and calendar effects.  Now the latter has to take place.  I want to emphasize that filling those gaps doesn’t mean that the indices will challenge their all-time highs and long term uptrends.  Indeed, prices could keep right on falling.  But it does mean that if an advance is to happen, the downward pull of those gap opens has been eliminated.




Volume rose; breadth was poor again.

The VIX rose 6%, which again seemed 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 rose seven cents but still finished below both moving averages and in a short term downtrend.

The dollar was down nine cents, but remains technically strong.  I remain of the opinion that UUP will move higher as long as the dollar funding problem persists. 

GLD was up 7/8 %, but still ended below its 100 DMA for a third day, reverting to resistance. 

 Bottom line: as unusual as this may sound, technically speaking, yesterday was about as good as it could get on wild roller coaster day that end down.  Both of the Averages closed the initial gap opens, removing them as a source of negative pull on prices.  Plus they both closed right on important technical support levels without breaking below---the Dow on its 200 DMA and the S&P on the lower boundary of its short term uptrend.  I want to repeat that this doesn’t mean stock prices are headed higher, but it is a great indication of the potential.
                       
            TLT and UUP were amazingly docile on a wild stock day; GLD acted as a safety trade, though not enough to improve an otherwise ugly chart.  
           
            Wednesday in the charts.

    Fundamental

       Headlines

            Yesterday’s US datapoints were slightly negative: weekly mortgage and purchase applications were down while October CPI was in line as was the ex food and energy reading.

            Overseas, the news was somewhat worse:  third quarter German flash GDP, third quarter Japanese GDP and October Chinese retail sales were all disappointing, while October EU GDP and October Chinese industrial production were in line and October EU industrial production and Chinese fixed asset investments were better than expected.  Even though there was upbeat numbers, this is not what global growth looks like.     
           
The China numbers.
                                                 

 ***overnight, China delivered a letter to the US addressing trade issues.  It apparently contained little new by way of concessions; but then they aren’t going to give away the ranch before real negotiations at the top begin.


                        The Japanese numbers.

                        Other news:

(1)   more on declining oil prices.

                 Inventories build:
                 https://www.zerohedge.com/news/2018-11-13/wti-api
                 
(2)   UK and EU reach an agreement on Brexit; but it requires approval from multiple entities.

                        ***overnight, chaos ensues.

(3)   plus Maxine Waters, soon to be chairperson of the house financial services committee, promised that come January, the deregulation gig for the banks is up.  Investors seemed spooked [financial stocks were down].  However, as you know, I am not a fan of the big banks and their history of taking too much risk and getting bailed out by the taxpayers when those risks become manifest.  So I am not upset with Ms. Waters stance.

                        ***overnight, Powell speaks, says that the economy is fine and QT (quantitative tightening) will proceed.

Bottom line:  in my opinion, irresponsible fiscal and monetary policies as well as the economic stats both here and abroad are not being correctly reflected in the price of stocks.  And as I said yesterday, sooner or later, those all are either going to start impacting valuations or they are going to change.  I don’t want to be fully invested betting that the latter will occur; so I want to own some cash in order to buy stocks cheaper if the former happens.

            The latest from Doug Kass.

            Behavioral risk is the highest in the early period of an investment.

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

      US

            Weekly jobless claims rose 2,000 versus estimates of unchanged.

            October retail sales were up 0.8% versus expectations of up 0.5%; ex autos, they were up 0.7% versus forecasts of up 0.5%.

            October import prices jumped 0.5% versus forecasts of +0.1%; exports prices advanced 0.4% versus consensus of 0.1%.

            The November Philadelphia Fed manufacturing index came in at 12.9 versus projections of 20.0.

            The November NY Fed manufacturing index was reported at 23.3 versus estimates of 20.0

     International

            October UK retail sales fell 0.5% versus expectations of up 0.2%.

    Other

            It is not if but when.

            Falling oil prices impacting other markets.

What I am reading today

            Who were the Mamluks?
           
            The sex recession: this is an excerpt; the whole article is long but for a baby boomer, I thought it really interesting.

            Another great moment in nanny statism.

                The pros and cons on living frugally and saving a lot in your 20’s and 30’s.

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


Wednesday, November 14, 2018

The Morning Call--Remember the last time oil prices fell


The Morning Call

11/14/18
The Market
         
    Technical

The Averages (DJIA 25286, S&P 2722) continued their Monday decline.   The Dow ended back below its 100 DMA for a second day (if it remains there through the close today, it will revert to resistance) but above its 200 DMA (now support).

The S&P finished below its 100 DMA for (now resistance), below its 200 DMA, (now resistance) and is closing in on the lower boundary of its short term uptrend (~2700).

My (technical) operating thesis right now is that the Averages have to close their initial gap opens in order to advance on their all-time highs and the upper boundaries of their long term uptrends.  If correct, then more downside is coming in order to close the initial gap opens before the seasonal and calendar effects kick in.

Volume fell slightly; breadth was poor.

The VIX was down 2%, returning to its recent pattern of performing contrary to its normal inverse relationship with equity prices.  However, it remains technically strong: above both MA’s and within a short term uptrend.

The long bond was down but not enough to re-establish the recently voided very short term downtrend.  However, it finished below both moving averages and in a short term downtrend.

The dollar was also down, but remains technically strong.  I remain of the opinion that UUP will move higher as long as the dollar funding problem persists. 

GLD was up fractionally, ending below its 100 DMA for a second day (now support; if it remains there through the close today, it will revert to resistance). 

 Bottom line: the bad news is that the S&P was unable to successfully challenge its 200 DMA; given its recent power as support, it is significant that it is now acting as resistance.  Plus, it still needs to close its late October gap open.   The good news is that both of the Averages closed the most recent gap open and the positive seasonal and calendar factors aren’t going away. 

The positive scenario is that the indices fall further and close the initial gap open, then go on to challenge higher resistance levels. The negative scenario is that the seasonal and calendar factors can’t offset the negatives being posed by an irresponsible fiscal policy, a tightening Fed and overly generous stock valuations.

                       
            TLT and UUP continue to act like interest rates are going higher; gold continues to act like s**t.
                       
            Tuesday in the charts.

    Fundamental

       Headlines

            There were two minor economic data releases yesterday: the October small business optimism index was slightly below estimates while month to date retail sales were flat with the prior week.

            No major headlines in the US but there are still developments that could potentially have an impact on the economy and the Markets.

            The positives:

(1)   there may be a Brexit deal.
                         
(2)   recession not likely in next 12 months.

(3)   mortgage delinquencies the lowest in 12 years.

            The negatives:

(1)   Italy defies EU mandate.

                       
(2)   oil continues to fall.

                              OPEC sees demand for crude declining.

On the other hand, the pin action may be the result of a hedge fund unwinding a losing position.
                              https://www.zerohedge.com/news/2018-11-14/was-behemoth-energy-fund-just-taken-chipper

                             ***overnight, OPEC is considering a production cut.


Finally, just a reminder of the macroeconomic consequences the last time oil prices plunged---‘an unmitigated positive’  NOT

(3)   Chinese credit growth slows significantly.

(4)   Moody’s expect credit conditions to weaken in 2019.

(5)   The math of the federal debt.

                              Total US debt to GDP.

            Bottom line:  while the economic news is not all bad, there is enough of it that, with the fading of the ‘everything is awesome’/’buy the dip’ mentality, it appears to be weighing on investor psychology.  There can always be a year-end rally based on seasonal/calendar effects.  However, US equities are already generously valued both on an absolute and relative basis.  Sooner or later, the bad news contained in the above links is either going to start impacting valuations or it is going to change.  I don’t want to be fully invested betting that the latter will occur; so I want to own some cash in order to buy stocks cheaper if the former happens.  I would use any strength in the Market to build a cash position, if I hadn’t already done so.

      News on Stocks in Our Portfolios
 
FactSet Research Systems (NYSE:FDS) declares $0.64/share quarterly dividend, in line with previous.

3M (NYSE:MMM) declares $1.36/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew at the same pace as the prior week.

Weekly mortgage applications were down 3.2% while purchase applications were off 2.3%.

October CPI rose 0.3%, in line; ex food and energy, it was up 0.2%, also in line.

     International

            Q3 EU flash GDP was up 0.2%; in line; German flash GDP was down 0.2% versus estimates of down 0.1%; October EU industrial production was -0.3% versus expectations of -0.4%.

            Q3 Japanese GDP was down 0.3% versus consensus of up 0.8%.

            October Chinese fixed asset investment came in up 5.7% versus forecasts of up 5.5%; industrial production was up .48%, in line; retail sales were up 8.6% versus projections of up 9.1%

    Other
                     
            The Fed chart book.

            A protectionist is….

                       
                        Wall Street is additive to the investment process.


What I am reading today

            Five ways to boost your social security benefit.


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




Tuesday, November 13, 2018

The Morning Call--Santa Claus rally still possible


The Morning Call

11/13/18

The Market
         
    Technical

The Averages (DJIA 25387, S&P 2726) gave back some of the gains from the last two weeks.   The Dow ended back below its 100 DMA (one trading day after its reversion to support; if it remains there through the close on Wednesday, it will revert to resistance), closed the most recent gap opens but above its 200 DMA (now support).

The S&P finished below its 100 DMA for (now resistance), back below its 200 DMA, negating last Thursday’s upside break (now resistance) and also closed the most recent gap open.

I don’t think that yesterday’s pin action is a negative sign that the positive seasonal and calendar effects won’t exert their usual influence.  Indeed, I have been pointing for the last week that those two gap opens probably needed to be filled before the indices could mount a challenge to their former highs or the upper boundaries of their long term uptrend. If the thesis is correct then more downside is coming in order to close the initial gap opens.

Volume actually rose on the holiday trading; breadth was bad.

The VIX was up 16 %, but not as much as I expected on a 600 point down day in the Dow.  It remains above both MA’s and within a short term uptrend.

The bond market was closed.

The dollar was up 7/8 %, continuing its strong performance.  I remain of the opinion that UUP will move higher as long as the dollar funding problem persists. 

GLD fell ¾ %, ending below its 100 DMA (now support; if it remains there through the close on Wednesday, it will revert to resistance) and the lower boundary of the trading range is was trying to build. 

 Bottom line: the bad news is that the S&P was unable to successfully challenge its 200 DMA and still needs to close its late October gap open.   The good news is that both of the Averages closed the most recent gap open and the positive seasonal and calendar factors aren’t going away. 

The positive scenario is that the indices fall further and close the initial gap open, then go on to challenge higher resistance levels. The negative scenario is that the seasonal and calendar factors can’t offset the negatives being posed by an irresponsible fiscal policy, a tightening Fed and overly generous stock valuations.

    Fundamental

       Headlines

            No economic releases yesterday.

            And not a lot of news.  However, here are articles on my three favorite subjects.

(1)   peak fiscal indiscipline.

And:

(2)   change in central bank balance sheets in the second half.

(3)   new China anti IP theft policy.  Trump should have doing this all along instead of getting bogged down in a tariff dispute.

***overnight, top US and Chinese trade officials will meet in anticipation of Xi/Trump talks at G20 meeting.

            Bottom line: the economic/Market fundamentals are not improving and valuations are too high (as calculated by my Valuation Model).  There is the possibility of an end of the year, Santa Claus, rally.  If that takes place, I would use the opportunity to build cash---if you haven’t already done so.


    News on Stocks in Our Portfolios

Home Depot (NYSE:HD): Q3 GAAP EPS of $2.51 beats by $0.26.
Revenue of $26.3B (+5.1% Y/Y) beats by $60M.


Economics

   This Week’s Data

      US

            The October small business optimism index was reported at 107.4 versus expectations of 108.0.

     International

    Other

            What do falling oil prices mean?

            Latest on the Italy/EU standoff.

            Bank of Japan’s total assets are now larger than the country’s GDP.

What I am reading today

            Why social security will never run out of money.

                The financial problems of state pension funds.

                The world’s healthiest people don’t go to the gym.

                Can you afford to retire?

                North Korea expands secret missile bases.


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