Tuesday, December 11, 2018

The Morning Call---Oversold bounce versus Santa Claus rally


The Morning Call

12/11/18

The Market
         
    Technical

The Averages (DJIA 24423, S&P 2637) had another roller coaster day, swinging 500 Dow points intraday before closing slightly up.  They both finished below both moving averages and have set a second lower high and second lower low.  The only good news is that both tested their late October lows and bounced off a very oversold condition.  More upside would not be surprising.  However, the indices’ charts continue to deteriorate.   

Volume rose and breadth was mixed.

The VIX was down slightly, but its chart remains positive (bad for stocks).

The long bond rose ½ %, finishing above its 100 DMA (now support), above its 200 DMA for a fourth day, reverting to support and above the upper boundary of its short term downtrend (if it remains there through the close on Wednesday, it will reset to a trading range.   Clearly, investors continue to shift their outlook for interest rates (lower).

Interview with BofA’s head of global rates.

The dollar was up, ending back above the lower boundary of its very short term up trend, voiding Friday’s break. So the chart continues to be technically strong.

GLD slipped, but remains above its 100 DMA and is developing a very short term uptrend.  

 Bottom line: yesterday’s dramatic intraday reversal notwithstanding, the Averages’ charts continue to deteriorate technically, making any meaningful Santa Claus rally ever more difficult.  That said, they remain oversold, so more upside short term wouldn’t surprise me. 

            The pin action in the long bond continues to point to lower rates.  While that may be good news with respect to Fed policy, it also suggests bad news for the economy (i.e. weaker). 

            For the bulls.

            Monday in the charts.

    Fundamental

       Headlines

No US economic releases yesterday.  But we did get some overseas data which was mixed: November Chinese CPI and PPI were below estimates; in addition, exports/imports weakened though the trade surplus with the US grew; and third quarter Japanese GDP fell.
           
            And aside from the market itself, it was a quiet day save for the ongoing turmoil over Brexit.

            No give at the EU.
                          

            Bottom line: there remain some potentially impactful events in our near future: the FOMC December meeting, the Trump/dem showdown on funding the government/the wall and the Chinese response to the arrest of the CFO of a major Chinese tech company.

I am not going to speculate on the political dynamics or the outcome of the latter two; though clearly we have to leave open the possibility of some not so positive outcomes.

Trump threatening an end around of the wall.

                Chinese are still acting nicey, nice on trade.

                This just in.  Chinese detain former Canadian diplomat.

               
            Whatever the Fed does with interest rates, it is less important than the continuing unwind of its balance sheet (less liquidity).  It will be joined shortly by the ECB (not selling securities, just not buying them).  This at a time of record levels of debt, in particular, lower rated corporate debt.  I continue to believe that this is the beginning of the reversal of the misallocation/pricing of assets.  It may start in the credit markets, but stocks will likely not be far behind.  I am happy with my cash position.

Is the ECB now more hawkish than the Fed?

50% downside?

            Hedge funds still have stocks to sell.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            The November small business confidence index was reported at 104.8 versus expectations of 107.0.

            November PPI was up 0.1% versus estimates of 0.0%; ex food and energy, it was up 0.3% versus forecasts of +0.1%.

            Month to date retail chain stores sales grew slower than in the prior week.

     International

            October UK industrial production was well below consensus; GDP was in line.

    Other

            The R word.

            Or not.

            Macron’s surrender will blow out the French budget deficit.  Cue the response from Italy.
               


What I am reading today

            More on cryptocurrencies.

            Quote of the day.


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




No comments:

Post a Comment