Wednesday, March 21, 2018

The Morning Call--Powell's first FOMC meeting


The Morning Call

3/21/18

The Market
         
    Technical

The indices (DJIA 24729, S&P 2716) managed to recover some of Monday’s losses.  Volume was down, but breadth improved.  The indices continue to trade above both moving averages and within uptrends across all major timeframes. So the technical assumption remains that long term stocks are going higher.  On the other hand, they are now in a very short term downtrend.  The key to negating that trend would be the end of the current ‘sell the rips’ mentality.  Until that occurs, short term it looks like lower prices.  The big question is, if there is more downside, will it be big enough to begin successfully challenging those moving averages and uptrends?

The VIX was off 4 ¼ %, but still ended above the upper boundary of its very short term downtrend for a second day, negating that trend.  It appears that the recent calm in the VIX could be over.

The long Treasury declined, finishing below the upper boundary of its former very short term downtrend just three days after negating it.  However, more follow through on the downside is needed before that very short term downside is reestablished.  Whatever happens to the very short term trend, the momentum in TLT is still lower.  

The dollar rose, getting back in sync with bonds (yields up, UUP up).  While it is struggling to stabilize, the trend remains down.

GLD fell ½ %, finishing back below the lower boundary of its short term uptrend, which it broke last Friday, then reclaimed on Monday; if it remains below that boundary through the close on Thursday, it will reset to a trading range.  Gold appears to be at an important directional juncture.

Bottom line: the technicals of the equity market point higher for the long term.  The thing that I am watching now is whether the ‘sell the rips’ mentality holds.  If it does, then very short term the pin action will point down.  The big issue is will ‘down’ be big enough to start taking out major support levels.  TLT, UUP and GLD all traded like rates are going higher, which, to me, seems at odds with yesterday’s stock market performance.

    Fundamental

       Headlines
            Only one minor economic stat released yesterday---month to date retail chain store sales growth improved.  Today will be a big one with the completion of the FOMC March meeting and what it does (raise rates or not) and says (about the economy and the likelihood of subsequent rate increases).

            Bottom line: yesterday, there was very little other news with the narrative focused on the outcome of the FOMC meeting.  Absent from much of the discussion of what the impact of the current out of control fiscal policy could have on Fed policy, i.e. what happens when the massive government financing needs meet quantitative tightening?  Owning some cash is probably a good idea.

            Forget the Fed, commodity prices are plunging (short):

            Washington’s fiscal folly (medium):
      
            It is not different this time (medium):

            More words of caution (medium):

            The latest from Doug Kass (medium):

            And now for some good news: US backing off NAFTA demands (short):

    News on Stocks in Our Portfolios
 
General Mills (NYSE:GIS): Q3 EPS of $0.79 beats by $0.01.
Revenue of $3.88B (+2.4% Y/Y) beats by $100M.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew faster than in the prior week.

            Weekly mortgage applications fell 1.1% while purchase applications were up 1.0%.
           
            The fourth quarter trade deficit was $128.2 billion versus expectations of $126.8 billion.

     International

            March German business conditions were reported are 90.7 versus estimates of 90.0; however, business expectations were 5.1 versus forecasts of 13.0.

            February UK CPI was up 2.7% versus consensus of up 2.8% while unemployment declined from 4.4% to 4.3%.

    Other

            Minsky and asset price inflation (medium and today’s must read):

            Assessing the probability of a recession (short):

            GDP growth nowcasts (short):

            Update on big four economic indicators (medium):

            China as seen from a glass house (medium):

            March chemical activity barometer (short):

What I am reading today

           
            Three reasons to take social security early (medium):

            Black hole mysteries (medium):

            Cryptocurrencies get a break (medium):

            Yellowstone’s largest active geyser erupts for first time since 2014 (short):

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