This weekend is our granddaughter’s birthday, so we are leaving this afternoon to join her family of a long weekend. See you on Monday.
The indices (DJIA 26076, S&P 2822) took another shellacking yesterday, with the Dow closing right on the upper boundary of its short term trading range. Still as selloffs go this is a pimple on a goat’s ass. It will take a lot more of this kind of pin action before anyone can suggest anything other than a pause that refreshes.
Volume rose; breadth weakened. Long term, the Averages remain robust viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of their long term uptrends. The technical assumption has to be that stocks are going higher.
The VIX was up another 7%, clearly reflecting investor uncertainty.
The long Treasury was off again, continuing its downward trend and moving it within a point of the lower boundary of its short term trading range. It would appear the recent question over follow through is being answered to the downside; though it remains in a technical no man’s land.
The 30 year triggers Gundlach’s threshold (short):
And the Treasury increases its auction sizes (medium):
The EU also has a problem (medium and a must read):
The dollar was down fractionally, doing little to improve an otherwise sick chart but also demonstrating weak follow through to the downside.
GLD declined, trading below the lower boundary of its very short term uptrend for a second day and negating that trend. However, the chart continues to look good.
Bottom line: equity investors seemed most concerned about what Trump might say tonight; and who can blame them? That said, what they are worried about are comments that could be negatively interpreted regarding the dollar and trade relations.
However, the Averages remain quite strong with regard to almost all trend indicators. So as I noted above, it will take a lot of bad news to even touch, much less successfully challenge, any of the trend or momentum indicators.
Investors appear to remain concerned about rising interest rates, a falling dollar and the potential impact of deteriorating trade relations. What seemed to accentuate that point yesterday was the prospect of the Donald saying something stupid or incendiary in the state of the union address that could be interpreted negatively on one or more of those issues. My guess is that Trump’s Davos speech was a warm up for the SOTU, so I don’t think that there will be any fireworks (there weren’t).
That said, what Trump does or doesn’t say is a lot less important than what has already been done with regard to the aforementioned issues. Investors finally seem to be waking up to the facts that (1) the Fed has overstayed its easy money policy and has no good alternatives going forward, (2) deficit spending is not a plus in the final stages of an economic recovery and (3) free trade has made us better off economically and undoing that would not be to our advantage.
Bottom line: the question is, is this a one day affair providing an excuse to take some profits or are investors really starting to factor in the potential for higher rates, a weaker dollar and trade disruption. Given the level of euphoria of late, I would have to say the former. But at least, the important considerations have gotten a little attention.
All-time highs, risk and consequence (medium):
News on Stocks in Our Portfolios
Boeing (NYSE:BA): Q4 EPS of $4.80 beats by $1.91; $3.04 excl. tax reform adjustment.
Automatic Data Processing (NASDAQ:ADP): Q4 EPS of $0.99 beats by $0.09.
C.H. Robinson Worldwide (NASDAQ:CHRW): Q4 EPS of $1.08 beats by $0.24.
This Week’s Data
January consumer confidence came in at 125.4 versus expectations of 123.6.
Weekly mortgage applications fell 2.6% while purchase applications were down 3.0%.
The January ADP private payroll report showed job increases of 234,000 versus estimates of +195,000.
January German unemployment reached a record low.
January Chinese manufacturing PMI was below forecasts while the services PMI was above.
China’s potential response to US tariffs (medium):
US 2019 budget deficit could top $1 trillion (medium):
What I am reading today
50 best movies of all time.
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