Thursday, January 24, 2019

The Morning Call--Apparently, everything is again awesome


The Morning Call

1/24/19

The Market
         
    Technical

The Averages (DJIA 24575, S&P 2638) improved yesterday, bouncing off their close brush with the 61.8% Fibonacci retracement level.  This indicates that this resistance level has been taken out and raises the odds that December 24 was a bottom and more upside is to be expected.  That said, both Averages remain below both MA’s and are in short term trading ranges. 

In addition, the S&P fell below the lower boundary of its very short term uptrend for a second day, voiding that trend.  However, as I said yesterday that trend’s angle of ascent was so steep, it was bound to be negated at some point soon.

Volume declined; breadth was poor---a little usual for an up day in the indices.

The VIX fell 6 %, but ended above both MA’s and in a short term uptrend.

The long bond declined a nickel, but finished above both MA’s, in short and intermediate-term trading ranges, in a very short-term uptrend and above its last prior higher low.  

The dollar was down ¼ %, still closing above both MA’s, in a short-term uptrend and within that mid-November to present consolidation phase. 

GLD declined fractionally, but ended well above both MA’s, within a very short-term uptrend and within a short-term trading range---a healthy chart.

 Bottom line: the Averages successfully challenged their break of the 61.8% Fibonacci retracement level, which suggests that the December 24 low was a bottom.  As I noted before, that doesn’t mean that stocks won’t fall from current levels.  It just raises the probability that the worst is over.  It is somewhat bothersome that breadth was poor, the VIX still has a positive chart (an indicator of potential negative equity pin action) and the dollar, long bond and gold are performing like safety trades.

Wednesday in the charts.

    Fundamental

      Headlines

            Yesterday’s economic stats were mixed: weekly mortgage and purchase applications were down, month to date retail chain store sales improved slightly and the January Richmond Fed manufacturing index fell into minus territory, just not as much as expected.
           
Overseas, the dataflow continues negative: the Bank of Japan lowered its estimate of the Japanese economy’s growth in 2018 but raised it for 2019 and 2020.  However, it also lowered its inflation outlook which is something of a wash.  The January EU consumer confidence came in below forecasts.

***overnight, the ECB left rates unchanged and said that it will continue to reinvest maturing securities in its portfolio.


The rest of the news was just a lot jawing about the government shutdown, Trump’s state of the nation speech and the US/China trade dispute.

            Government shutdown enters uncharted waters.

            Increasing risk of a major China trade debacle.

            ***overnight, Reuters reports that the US and China will hold high level trade talks next week.
           
            Bottom line: at the moment, it seems investors are not that concerned about a slowing global economy and its implication for corporate earnings, an unpleasant outcome to the US/China trade negotiations or the willingness of the ruling class to suck up to the Markets.  To be sure, stocks are still 10% off their all-time highs.  But if the best investors can do is 10% upside from these levels, they need to be a lot more concerned about taking profits than putting money to work.
           
             I recognize that my fundamental assessment of Market is somewhat at odds with the technical read.  There are a lot reasons why that could happen; and I am not going to go into them at this.  I will if the indices get to an extreme.  Just so you know.

            The latest from Guggenheim Investments.

                       
                        The latest from Doug Kass.
               
    News on Stocks in Our Portfolios
 
W.W. Grainger (NYSE:GWW): Q4 Non-GAAP EPS of $3.96 beats by $0.36; GAAP EPS of $3.68 beats by $0.15.
Revenue of $2.76B (+4.9% Y/Y) misses by $50M.


Economics

   This Week’s Data

      US

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

The January Richmond Fed manufacturing index was reported at -2 versus forecasts of -3.

Weekly mortgage applications fell 2.7% while purchase applications were down 2.0%.

            Weekly jobless claims fell 13,000 versus expectations of 5,000 increase.

     International

            January EU consumer confidence came in at -7.9 versus estimates of -6.5

            The January Japanese flash manufacturing PMI was reported at 50.5 versus the December reading of 51.4.

            The January EU flash composite PMI was 50.7 versus consensus of 51.4; the manufacturing PMI was 50.5 versus 51.4 and the services PMI was 50.8 versus 51.7.

    Other

            Chemical activity barometer slows in January.

                Architectural billing slide.

            Warning signs in US shale production.

            To whom does the government owe money?

            This is a great piece on modern monetary theory. 

In my opinion, there are two flaws.  The first is in the first sentence of essay: ‘Modern Monetary Theory is defined as the proposition that the federal government can borrow as much money as it needs so long as the interest rate it pays is less than the growth rate of the GDP.’ Unfortunately, there are far too many times when the interest on government debt is higher than the growth rate of GDP but the government still borrows.

·                     The second is in this statement found later in the article: ‘Federal spending, therefore, does not require the government to claim a portion of the profits of private commerce; and increasing federal spending, therefore, does not require increasing that claim—either through taxing or “borrowing.”’  Roll that around in your head for a minute.  This saying that theoretically the government never has to tax incomes or profits.  Indeed, it can do away with all taxes; and just issue Treasury notes.  The problem as the author points out is that the Fed has to create the dollars that investors use to buy the Treasuries.  So what if it doesn’t---think Paul Volcker.


What I am reading today

            Who is the prototypical rich person?

            Watch an asteroid hit the moon.
-7.9.

            Seth Klarman pisses in the Davos punch bowl.

            Astronomers witness the birth of a black hole.

            Stockman: NATO is obsolete.

            Quote of the day.


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