Wednesday, October 31, 2018

The Morning Call--Too soon to be negative, too soon to be positive


The Morning Call

10/31/18

The Market
         
    Technical

The Averages (DJIA 24874, S&P 2682) staged a big rally yesterday.  However, the Dow ended below its 100 DMA (now resistance) as well as its 200 DMA (now resistance) and below the upper boundary of its very short term downtrend. 

The S&P finished below both moving averages, the upper boundary of a very short term downtrend and slightly below the lower boundary of its short term uptrend for the third day.  Ordinarily, I would reset the short term trend to a trading range; however, given its fractional close below that boundary, I am holding off the call for another trading day.

Volume advanced, remaining elevated; breadth improved.

The VIX fell 5 ½ %, putting, roughly though not quite, back in (inverse) sync with stock prices after two days of aberrant behavior.  However, remember that in both of those days, its performance had suggested either complacency or the conviction that stocks are near a bottom.  That may have happened yesterday.

The long bond was down ½ %, closing within a short term downtrend and below both moving averages.   Still a negative technical picture.

The dollar was up another ½ %, finishing above its August high and starting to build a very short term uptrend.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

And:

GLD fell ½ %, voiding the recently established very short term uptrend, closing just barely above its 100 DMA (now support) and continuing to fade its recent positive price performance.

 Bottom line: in recent comments, I have opined that, despite the negative volatility, it was too soon to get bearish.  Today, despite a great day in the Market, I think it too soon to believe that the worst is over.

The long bond and dollar continue to trade like interest rates are going higher while GLD wanders aimlessly in the desert.

                Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic releases were mixed: month to date retail chain store sales improved; the August Case Shiller home price index was in line; and the revised September/October consumer confidence index was a wash.

            No other meaningful developments.

Bottom line: the Market itself is the news; and the key issue is investor perception.  It seems to me to be shifting.  A year ago, bad news was ignored and any dip was bought.  Now, it seems good news is being ignored and the rips are being sold.  And the question is, how long will this change in sentiment last?  I have no idea; but I am watching the Markets’ reaction to new developments and the technicals for the answer.

I am happy with my cash.
                       
            The contracting P/E.

    News on Stocks in Our Portfolios
 
C.H. Robinson Worldwide (NASDAQ:CHRW): Q3 GAAP EPS of $1.25 beats by $0.07.
Revenue of $4.29B (+13.5% Y/Y) in-line.

Automatic Data Processing (NASDAQ:ADP): Q1 Non-GAAP EPS of $1.20 beats by $0.09; GAAP EPS of $1.15 beats by $0.05.
Revenue of $3.32B (+7.8% Y/Y) beats by $40M.

Economics

   This Week’s Data

      US

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

            The August Case Shiller home price index rose 0.1%, in line.

            October consumer confidence came in at 137.9 versus forecasts of 136.3; the September reading was revised from 138.4 to 135.3.

                Weekly mortgage applications fell 2.5% while purchase applications were off 2.0%.

            The October ADP private payroll report showed job gains of 227,000 versus consensus of 178,000.

            The third quarter employment cost index rose 0.8% versus expectations of +0.7%.

     International

            The October Chinese manufacturing PMI came in at 50.2 versus estimates of 50.6; the nonmanufacturing was 53.9 versus forecasts of 54.6.

            Third quarter EU (preliminary) GDP was +0.2% versus projections of +0.4%.

            The BOJ met and (1) lowered its estimate of 2018 GDP growth and (2) left interest rates and QE unchanged.

    Other

            Trump tariffs backfiring.

                        Capex fears.

What I am reading today

           

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Tuesday, October 30, 2018

The Morning Call--The technicals are still the headline


The Morning Call

10/30/18

The Market
         
    Technical

The pin action of the Averages (DJIA 24442, S&P 2641) continues to be the main headline---yesterday making an intraday swing of 900 Dow points and closing down solidly.  The Dow ended below its 100 DMA (now resistance) as well as its 200 DMA for a fourth day, reverting to resistance. 

The S&P finished below both moving averages and the lower boundary of its short term uptrend for the second day; if it remains below this level through the close today, it will reset to a trading range. 

Volume declined but remained elevated; and, as you might expect, breadth was lousy.

The VIX rose only 2 ¼ % which is unusual for a highly volatile day that ends down big.  That suggests either complacency or the conviction that stocks are near a bottom.

The long bond was down, closing within a short term downtrend and below both moving averages.   Still a negative technical picture.

The dollar was up another ¼ %, finishing above its August high---a clear plus.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD fell, but still ended above its 100 DMA (now support).  It also closed below the lower boundary of a newly developed very short term uptrend.  So the technical picture is improving but just barely.

 Bottom line: the good news is that (1) the VIX is not spiking, indicating the relatively low level fear, (2) the S&P hasn’t negated its short term uptrend---yet.  It still has today to recover, (3) this downturn is relatively mild to date; certainly no reason to panic and (4) we are upon the powerful positive seasonal pattern in November and December. 

The bad news is that (1) the Averages’ 200 DMA have reverted to resistance---which I have continuing reminded you, have been a source of considerable technical support for the last two years [I promise this is the last time], (2) if the S&P resets its short term to a trading range, there is not a lot of visible support above 1806, and (3) the FANG stocks, which have been the Market leaders for the entire recovery from 2009, are getting blasted; typically, when the Market loses its leadership, there is considerably more downside.

The long bond and dollar were back trading like interest rates are going higher while GLD wanders aimlessly in the desert.
           
            Monday in the charts.

            The mother of all support levels.

    Fundamental

       Headlines

            Yesterday’s economic data was mixed: September personal income grew less than anticipated while personal spending was in line, out pacing income. (While higher spending might seem like a good thing, it can’t last for too long in the absence of higher income without adverse consequences); the October Dallas Fed manufacturing came in above estimates.       
         
            The other item was not real news.  Trump ramped up tariff threats against China if the November meeting doesn’t go well---but he was just repeating himself. 

            Bottom line: The bad news is out there; but there has been bad news out there for a long time.  The difference this time is investor perception.  If that is turning negative on a longer term basis, then there could be a lot more downside because stocks are so richly valued.   And with the technicals continuing to deteriorate, that appears to be happening.

I am happy with my cash.

            Never tempt the Market gods.

    News on Stocks in Our Portfolios
 
Mastercard (NYSE:MA): Q3 Non-GAAP EPS of $1.78 beats by $0.10; GAAP EPS of $1.82 beats by $0.14.
Revenue of $3.9B (+14.7% Y/Y) beats by $40M

Cummins (NYSE:CMI): Q3 Non-GAAP EPS of $4.05 beats by $0.28; GAAP EPS of $4.28 beats by $0.55.
Revenue of $5.94B (+12.3% Y/Y) misses by $10M.

Coca-Cola (NYSE:KO): Q3 Non-GAAP EPS of $0.58 beats by $0.03; GAAP EPS of $0.54 in-line.
Revenue of $8.2B (-9.5% Y/Y) beats by $20M.


Economics

   This Week’s Data

      US

            The October Dallas Fed manufacturing index came in at 29.4 versus expectations of 28.0.

     International

            Third quarter EU GDP rose 0.2% versus estimates of up 0.4%.

    Other

            Is the growth myth over?

                More.
            Update on big four economic indicators.

                Slump in capital spending.

                The US borrowed $1.3 trillion in FY 2018.

            One of my long time pet peeves has been the pharmaceutical companies selling drugs to foreign countries cheaper than they do here.  Trump is now making an attempt to solve that problem.

            Math and the future of housing.

What I am reading today

            Three tips to avoid running out of money in retirement.

            80% of Americans face a retirement crisis.

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




Monday, October 29, 2018

Monday Morning Chartology


The Morning Call

10/29/18
The Market
         
    Technical

            The S&P once again closed below the lower boundary of its short term uptrend (if it remains there through the close on Tuesday, it will reset to a trading range).  If that challenge is successful, the next visible support level is 1806.   As you can also see, it is below both moving averages and in a very pronounced very short term downtrend. 



            The long bond rallied on Friday on huge volume.  If it can push up through its February/May lows, it will establish a very short term uptrend.  That said, I believe that this latest uptrend is a function of the bond’s role as a safety trade.  Ditto the dollar.



            The dollar fell, finishing back below its August high.  While its chart remains generally positive (above both MA’s and in a short term uptrend), it still needs to trade through that August high to confirm a further uptrend.



            Gold is trying to find a bottom and regain some upside momentum.  Since early October it has managed to do that but only by the hair on its chinny, chin, chin.  Watch for further upside.



            The VIX was unchanged on Friday, a good sign for stocks when the indices are down big. On the hand, its chart continues to show strength (above its 100 and 200 DMA’s and in a short uptrend) which is not a good sign.  Adding confusion to the technical picture.




    Fundamental

       Headlines

Last week’s economic data was neutral as were the primary indicators.  Score: in the last 159 weeks, fifty-two were positive, seventy-two negative and thirty-five neutral.   However, the international stats were quite disappointing. So nothing in my forecast changes: after a great second quarter, the economy is falling back to its below average secular growth rate.  On the other hand, it seems like investors, at least for the moment, are starting to doubt the current narrative that everything is awesome.

            The major headlines last week:

(1)   Trump proposed a 10% tax cut on middle income earners.  That was later modified by the chair of the house tax writing committee to include ‘if the GOP wins both houses in the November elections’.  These comments have politics written all over them; so I am not sure of the odds of a tax cut.  Further, if there is a cut, in my opinion, it will act as an offset to the spending cuts that Trump instructed his cabinet to make two weeks ago.  In short, the outlook for a rising deficit/debt remains in place and what that means for economic growth [or not],

(2)   the latest Fed Beige Book was released and read as expected; and the ECB met, leaving its plans unchanged for unwinding its version of QE.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            September personal income rose 0.2% versus expectations of +0.4%; personal spending was up 0.4%, in line.    

     International

    Other

What I am reading today

           

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Friday, October 26, 2018

The Morning Call--Dead cat bounce?


The Morning Call

10/26/18

I am off to my annual pledge class reunion.  No Closing Bell.  Back on Monday.

The Market
         
    Technical

The pin action of the Averages (DJIA 24984, S&P 2705) continues to be the main headline.  Yesterday, they bounced hard off of an oversold condition; though they did not recover all of Wednesday’s losses.  The Dow ended below its 100 DMA (now resistance) as well as its 200 DMA for a second day (now support; if it remains there through the close next Monday, it will revert to resistance). 

The S&P finished below its 200 DMA for a fourth day---sufficient to make the reversion to resistance an easy call.  At the risk of being repetitious, this MA has been major support for the S&P for the last two years.  So I consider this development more negative than would ordinarily be the case.  On a more positive note, the S&P did recover above the lower boundary of its short term uptrend, negating Wednesday’s break.

Volume declined; and, as you might expect, breadth improved

The VIX fell only 4% which is very little on a 400+point up day for the Dow.  Its chart remains positive---a negative for stocks.

The long bond was down ½ % on heavy volume, but remained above the upper boundary of a very short term downtrend---voiding that trend.  Nevertheless, it closed within a short term downtrend and below both moving averages.   Still a negative technical picture.

China vows to defend the yuan---meaning sales of its foreign reserves, i.e. US Treasuries, to buy the yuan.  Not a plus for interest rates.


The dollar was up ¼ % on big volume, finishing above its August high---a clear plus.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD fell ¼ %, but still ended above its 100 DMA for a third day, reverting to support.  So the technical picture is improving a bit after a long negative run.

 Bottom line: the good news is that the S&P voided the break of its short term uptrend; and the Dow still has the potential of negating the current challenge of its 200 DMA. 

The bad news is that the S&P’s 200 DMA, which has been a source of considerable technical support for the last two years, has reverted to resistance in a meaningful way.  In addition, the VIX hardly budged on major up day, meaning there continues to be a lot of negative sentiment.  If today’s follow through to the upside is weak and/or the S&P re-challenges its short term uptrend, which suggests more downside to come.  On the other hand, we are getting ever closer to the powerful positive seasonal pattern in November and December---meaning the lower the odds of much lower prices. 

***overnight, we may gotten the answer on direction. Amazon and Google had disappointing quarterly reports, issued disappointing guidance and the stocks are off.  If the tech stocks, which have led this Market for years, start to break down, the odds of the  indices regaining their early October highs will slip considerably to say nothing of the odds of their challenging the upper boundaries of their long term uptrends. 

The long bond and dollar were back trading like interest rates are going higher; but GLD seemed to maintain its status as a safety trade.
           
            Is the Market predicting a recession?

The recent decline in historical perspective.


    Fundamental

       Headlines

            Yesterday’s economic numbers were negative: the September trade deficit, weekly jobless claims and the October Kansas City manufacturing index all disappointed; September pending homes sales were better than forecast; while the headline September durable goods order (primary indicator) has better than expected, ex transportation, it was quite weak.  These are not great stats at a time when suddenly investors are waking up to the fact the economy is not nearly as awesome as the ruling and chattering classes would have us believe.
                 
           Bottom line: The bad news out there; but there has been bad news out there for a long time.  The difference this time is investor perception.  If that is turning negative on a longer term basis, then there could be a lot more downside because stocks are so richly valued.  I still want to see the confirmations of the Averages’ challenges of their 200 DMA and the S&P’s challenge of its short term uptrend before getting really Market negative.  However, I am happy with my cash.

            When stocks fall 10%.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

September pending home sales rose 0.5% versus estimates of unchanged.

The October Kansas City Fed manufacturing index was reported at 8 versus September’s reading of 13.

The initial estimate of third quarter GDP came in at 3.5% versus expectations of 3.3%; the price deflator was 1.7% versus forecasts of 2.0%.

  International

    Other
               
                Stalling new home sales.
                          
                Brexit back on hold.

                    Is Chinese luck running out?
                          

What I am reading today

            Have the rich really gotten all the gains from economic growth?
                        
                        Humble exits.

            14 investment principles.

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




Thursday, October 25, 2018

The Morning Call--How strong the oversold bounce?


The Morning Call

10/25/18

The Market
         
    Technical

The Averages (DJIA 24583, S&P 2656) were yesterday’s story, selling off dramatically.  The Dow ended below its 100 DMA (reverting to resistance) as well as its 200 DMA (now support; if it remains there through the close next Monday, it will revert to resistance).  The S&P finished below its 200 DMA for a third day (now support; if it remains there through the close today, it will revert to resistance) and the lower boundary of its short term uptrend (if it remains there through the close on Friday, it will reset to a trading range).  This is the first challenge of that uptrend since February 2018.  Volume was up and breadth negative, back in oversold territory.

Buy the dip?

The VIX spiked 22%, clearly retaining its positive chart; and still a negative for stocks.

The long bond rose ¾ %, ending above the upper boundary of its very short term downtrend.  If it remains there through the close today, the trend will be voided.  However, it continues to trade within a short term downtrend and below both moving averages.   Still a negative technical picture.

                And.

The dollar was up ½ %, touching its August high.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD was up ¼ %, finishing above its 100 DMA for a second day (now resistance; if it remains there through the close on today, it will revert to support).  Until the 100 DMA is reset, I remain unimpressed with its pin action.

 Bottom line: clearly, yesterday was painful and, for the first time, I am beginning to believe it could get more so.  If the S&P’s 200 DMA reverts to resistance, that would be bad enough.  As I have noted, this MA has been a major level of support for the last two years.  Its collapse would be a major technical negative.  However, if the short term uptrend also resets to a trading range, then we are looking as some serious downside objectives, i.e. the next visible major support level of any consequence is around 1806. 

All that said, the S&P has today and Friday to recover losses; and given the oversold state of the Market, we will almost surely get some kind of rally.  So it is still too soon to get beared up.  But the force of the rally will be important, directionally speaking.  Just to confuse matters a bit more, don’t forget that we are getting ever closer to the powerful positive seasonal pattern in November and December---meaning the lower the odds of much lower prices. 

The long bond, dollar and gold all acted as safety trades yesterday.
           
            Wednesday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic data was mixed: weekly mortgage and purchase applications were up and the October Markit flash composite, manufacturing and services PMI’s were better than anticipated; however, September new home sales (a primary indicator) were awful.

               In addition, the latest Fed Beige Book was released.  It read pretty much as expected: moderate economic growth, tighter labor markets and rising input costs.  Not a dataset that would lead the Fed to take its foot off the brakes.  On the other hand, there was much handwringing over trade and that could be a catalyst for ease.  That said, there was no indication of a potential policy change in the narrative.
          
         ***overnight, the ECB met and (1) left rates unchanged and (2) did not change the language regarding the end of QE starting in December (earlier I mistakenly said that it ended this month).  Nothing new.
          

            Bottom line: as I noted above, the investor psychology is now the story.  The bad news out there; but there has been bad news out there for a long time.  The difference this time is investor perception.  If that is turning negative on a longer term basis, then there could be a lot more downside because stocks are so richly valued.  I still want to see the confirmations of the Averages’ challenges of their 200 DMA and the S&P’s challenge of its short term uptrend before getting really Market negative.  However,  I am happy with my cash.


    News on Stocks in Our Portfolios
 
Illinois Tool Works (NYSE:ITW): GAAP EPS of $1.90 beats by $0.02.
Revenue of $3.61B (-0.3% Y/Y) misses by $110M.

T. Rowe Price (NASDAQ:TROW): Q3 Non-GAAP EPS of $1.99 beats by $0.05; GAAP EPS of $2.30 beats by $0.36.
Revenue of $1.39B (+12.1% Y/Y) in-line.


T. Rowe Price (NASDAQ:TROW) declares $0.70/share quarterly dividend, in line with previous.

Microsoft (NASDAQ:MSFT): Q1 GAAP EPS of $1.14 beats by $0.20.
Revenue of $29.1B (+18.6% Y/Y) beats by $1.22B.

Sherwin Williams (NYSE:SHW): Q3 Non-GAAP EPS of $5.68 misses by $0.07; GAAP EPS of $3.72 misses by $1.04.
Revenue of $4.73B (+4.9% Y/Y) misses by $80M.

Economics

   This Week’s Data

      US

            September new home sales fell 5.4% versus estimates of a fractional decline.

            The October Markit flash composite index came in at 54.8 versus forecasts of 54.1; the manufacturing index at 55.9 versus 55.5; and the services index 54.7 versus 54.0

            September durable goods orders jumped 0.8% versus consensus of -1.5%; but ex transportation, they rose 0.1% versus projections of +0.4%.

            The September trade deficit was $76.0 billion versus estimates of $74.7 billion.

            Weekly jobless claims rose 5,000 versus forecasts of up 2,000.

     International

            The October Markit EU flash composite PMI was reported at 52.7 versus expectations of 53.9; the manufacturing PMI was 52.1 versus 53.0; the services 53.3 versus 53.4.

    Other

What I am reading today

            The latest on student loans.
           
            A thought experiment on expanding the house of representatives.

                It is not getting better in Italy/EU faceoff.


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