Wednesday, November 7, 2018

The Morning Call---Gridlock, my favorite


The Morning Call

11/7/18

The Market
         
    Technical

The Averages (DJIA 25635, S&P 2755) continued their rally, slightly improving the technical picture.  The Dow ended above its 100 DMA (now resistance; if it remains there through the close on Thursday, it will revert to support) and above its 200 DMA for a fourth day, reverting to support.

However, the S&P finished below both moving averages and above the lower boundary of its short term uptrend.

Volume very low, likely reflecting that investors chose to remain on the sidelines ahead of the election; breadth improved.

The VIX was down fractionally, again trading somewhat at odds with the Averages, suggesting complacency.  It finished above both MA’s and in a short term uptrend. 

The long bond was down, ending within very short term and short term downtrends and below both moving averages.   Still a negative technical picture, indicating higher interest rates.  However, like equities, volume was quite low.

The dollar was down slightly, closing below its August high but still within a short term and a very short term uptrends and above both moving averages.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD was down ¼ %, but remained above its 100 DMA.  While the pin action remains a bit confusing, it does seem to be trying to establish a trading range slightly above the former August to October trading range.

 Bottom line: I am continuing to focus on the S&P which is trading between its 200 DMA (which has been a significant level for the past two years) on the upside and the lower boundary of its short term uptrend (which it challenged unsuccessfully last week) on the downside.  Whichever of those boundaries gets successfully challenged should tell us a lot about future price direction.  Keep in mind that (1) we are now in a seasonal period of strong Market performance but (2) last Wednesday’s gap open to the upside needs to be filled.

TLT’s and UUP’s performances both continue to point to higher interest rates (a tighter Fed) which is definitely not a plus for the Markets. 

    Fundamental

       Headlines

            Two datapoints yesterday: month to date retail chain store sales improved while September job opening were disappointing.

            Two other developments:

(1) a Chinese official said that the Chinese were willing to negotiate on Trump’s main trade complaints.  I have frequently opined that I think that the Chinese would not do anything on trade ahead of the elections.  So maybe the comment was in intended to demonstrate that they are willing to help Trump,

(2) while at the same time, they have the power to harm---North Korea starts with the threats again. 

Bottom line: yesterday, all eyes were on the elections.  We now know the outcome: gridlock, which has always been a plus in my eyes, i.e. there is no majority to pass legislation that screws with my life.  In this particular case, it will hopefully slow down the growth in the deficit/debt, which, as you know, is major beef with me.  To be sure, there won’t be any decline but at least it could stop growing.

Here is Goldman’s assessment.

            The Markets’ reaction (pre-open):

            Now comes the FOMC meeting and its policy statement tomorrow.  Expectations are for nothing new.  We will see.                

The Fed’s Goldilocks forecast.
                                   
            An interview with Howard Marks.

    News on Stocks in Our Portfolios
 
Automatic Data Processing (NASDAQ:ADP) declares $0.79/share quarterly dividend, 14.5% increase from prior dividend of $0.69.

General Mills (NYSE:GIS) declares $0.49/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

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

September job openings came in at 7.0 million versus expectations of 7.1 million.

            Weekly mortgage applications fell 4.0% while purchase applications dropped 5.0%.

     International

            September German industrial production rose 0.2% versus estimates of -0.1%.

    Other

            This article is on healthcare spending in the UK; however, there is one chart worth your attention---healthcare spending as percentage of GDP for large developed countries.

            The latest on Brexit.

            Recession risks remain low.

What I am reading today

            The problem with boredom.

                        Reflections on the lottery.

            The declining effectiveness of congress.

                Quote of the day:

           

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