The Averages (DJIA 24207, S&P 2616) made another decent advance yesterday. However, both indices finished below both moving averages (the S&P 100 DMA has crossed below its 200 DMA’s---an historically negative technical signal). The Dow finished in a very short-term downtrend and a short-term trading range. The S&P closed above the upper boundary of its short-term downtrend (if it remains there through the close on Friday, it will reset to a trading range). It is also in a very short-term uptrend.
They remain in the trading range between the 50% and 61.8% Fibonacci retracement levels---which, as I noted yesterday every trader in the galaxy is watching this range. If they can trade above the 61.8% level (24350, 2631), the view would be that the indices made a bear market low on December 24 and will continue to move to new highs. If they trade below the 50% level (23844, 2577), then the view would be that the latest uptrend was just a rally in a bear market.
Volume rose slightly; breadth was mixed---like yesterday, a little surprising for a broad up day.
The VIX was up 2 3/8 %---an unusual occurrence on a solid up day. It ended back above its 100 DMA, negating Tuesday’s break. It has now failed to successfully challenge this boundary for the second time in less than a week. It remained above its 200 DMA and in a short-term uptrend.
The long bond rose, finishing above both MA’s, in short and intermediate-term trading ranges, in a very short-term uptrend and failed an intraday challenge of its prior higher low.
The dollar was up, closing above both MA’s, in a short-term uptrend and has regained the lower boundary of that mid-November to present consolidation phase.
GLD advanced 3/8 %, ending above both MA’s, within a very short-term uptrend and within a short-term trading range---a healthy chart.
Bottom line: The Averages continue trade in an important (at least to the technicians) technical range. I think that a successful S&P challenge of its short-term downtrend would give weight to the notion that the indices will break the upper boundary of the Fibonacci determined trading range.
I continue to watch the technical levels and let the Market tell me if the December bear market is over or just experienced a counter trend rally.
Yesterday’s pin action in TLT, UUP and GLD was back to sending an uncertain message on the economy---unless they are all acting as a safety trade.
Wednesday in the charts.
Yesterday’s economic releases were slightly positive: weekly mortgage and purchase applications as well as the January housing market index were upbeat; December import prices fell less than anticipated but export prices declined more.
Here is the first estimate of the impact of the shutdown on GDP growth. It is higher than I thought; but we won’t know until the data comes in.
The Fed released its latest Beige Book which again portrayed the economy as growing, labor markets tight but with increasing concerns over financial market volatility (that seems to be fading fast), rising short-term interest rates (not with Powell’s new improved policy), falling energy prices (they are up in the last month), and elevated trade and political uncertainty (OK, that is one out of four).
US monetary policy has helped tame Chinese ambitions.
And if that doesn’t work, maybe a federal investigation of Huawei will.
****overnight: meanwhile, Chinese shipping rates provided further evidence of growing weakness in the Chinese economy.
The mispricing of assets---the ECB version.
Bottom line: I have noted of late that there are a number of economic/political factors that could negatively impact the Markets. However, what I have been most focused on is monetary policy---my thought being that a continuation of QT will weigh the heaviest on stock prices. Yesterday, we received the most recent data on global central bank balance sheets and it reflected huge liquidity injections over the last month. We do know that at least some of this liquidity is being provided by the Bank of China for what appear to be seasonal reasons.
***overnight, another huge injection by the Bank of China.
Central bank balance sheets once again growing.
Compare and contrast this chart of gold against the chart on monetary growth in the above link.
That said, if the central banks are back pumping money into the financial system, then I think stocks are going higher and, hence, that the technical question discussed above will resolve itself to upside---unless the global economy is falling into recession, which is not my forecast.
Of course, that means that stocks, in general, will not be any less overvalued.
News on Stocks in Our Portfolios
This Week’s Data
The January housing market index came in at 58 versus an estimate of 57.
Weekly jobless claims fell 3,000 versus expectations of a 5,000 increase.
The January Philadelphia Fed manufacturing index was reported at 17 versus forecasts of 10.
What I am reading today
Professional investors are terrible at selling.
Hauser’s law on tax collections.
So much for the globalist’s ‘we are the world’ narrative.
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