Monday, March 5, 2018

Monday Morning Chartology

The Morning Call


The Market

            The pin action last week was heartburn inducing.  However, Friday the S&P bounced off its 100 day moving average---this after bouncing off its 200 day moving average mid-February.  In the process, it made a higher low.  Of course, it had previously made a lower high; so there is a narrowing of its very short term trading action.  Nonetheless, at this moment, it has more near-in downside support than it has upside resistance.  So the technically speaking, I think prices are more likely to go higher than lower.


            About the only positive thing one can say about the TLT chart is that it has bounced off the lower boundary of its long term uptrend twice; but it is not unusual for a long term trend to be challenged several times before breaking.  Other than that, momentum is clearly to the downside.

            Jim Grant on the bond market (medium and a must read):

            The dollar has at least stabilized, which is to be expected if interest rates are rising.  However, momentum is still to the downside, though it may be losing steam.

            GLD has held its short term uptrend and remains above its 100 and 200 day moving averages.  That it has also made a recent lower higher is a little disconcerting; but as long as it holds the uptrend, I am encouraged.

            The VIX remains above its 100 and 200 day moving averages and tested the lower boundary of its short term uptrend; however, it also failed to make a new high.  So its very short term direction is a little cloudy.  One thing we do know is that which ever way it breaks, it will likely be a bit stomach churning.




            Update on valuations (medium):

            The economic data in the week of 2/19 were generally upbeat though the primary indicators were negative.  I rate it a neutral.  In other news was the releases of the most recent FOMC minutes whose narrative was more negative than those from recent meetings.  Nonetheless, investors chose to interpret it dovishly.

            Last week, the stats were poor and the primary indicators were awful.  So I call it a negative.  Score: in the last 125 weeks, forty-two were positive, fifty-nine negative and twenty-four neutral.  The importance of the latest numbers is that(1) they continue the trend of slowing/stagnating economic activity, (2) but they are contradictory to the latest comments by new Fed head Powell, who in his latest testimony to congress talked up the strength in the economy and hence, the increasing likelihood of more rate hikes. 

When I read his comments, I couldn’t help wondering what data that he was looking at given that the last nine weeks of stats has been sub-par.  Jeffrey Snider has suggested in several links in these notes that the Fed’s consistent misinterpretation of some of the data (1) was a function of  the Fed’s faulty Keynesian model and (2) the Fed’s staff attempt to beat cognitive dissonant numbers so that they fit the model, however lacking in objectivity it is.  In short, we could be facing a scenario in which the Fed is starting to rationalize the unwinding of QE---and its impact on the equity market.

And making matters a bit more dicey, BOJ governor Kuroda hinted that the end of Japanese QE may be near (medium):

The other newsworthy item was Trump’s cranking up the rhetoric on steel and aluminum tariffs and will reportedly impose them this week.  I have spent way too much time lamenting the potential consequences of a trade war to repeat myself.   However, the data available on the pricing in steel and aluminum industries makes the Donald’s threats a bit mystifying; that is, as explained below, these tariffs impact our allies much more than Trump’s biggest trade whipping boy, China.

That said, I remain in the camp of those adamantly opposed to tariffs.  Playing out before us is a huge gamble by Trump: is he right about the extent of price cheating and that there will be little response or is he about to start a real trade war?   I have tried to link to as many opinions, pro and con, as I could find that might clarify the issue for us.  But alas I see no strong indication one way or the other about how this ends.  But it looks like we are about to find out.
            What happened after Smoot Hawley passed (short):

            What happened when Bush imposed steel tariffs (short):

            In addition (short):

            The WSJ opinion (medium):
                Our trading partners’ opinion (medium):

            In addition (medium):

            Gary Cohn’s opinion (medium):

            Trump advisors response (medium):

            Then doubles down (medium):

            CafĂ© Hayek on tariffs (short):

                        And (also short):

            *overnight (short):

    News on Stocks in Our Portfolios

   This Week’s Data



            ***overnight, the February EU and Chinese composite PMI’s were below expectations.


            Goldman on the ‘synchronized global expansion’ (short and a must read):

What I am reading today

            Quote of the day (short):

            When you feel like the world is coming to an end, take a look at these charts (short):

            Italy’s anti-establishment vote (medium):

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