The Morning Call
1/3/19
The
Market
Technical
The Averages
(DJIA 23346, S&P 2510) had another volatile day, starting off down big then
recovering the rest of the day. They both finished below both moving averages. The Dow finished in a short-term trading
range; the S&P in a short-term downtrend.
However, they both closed above the upper boundary of their very short-term
downtrends, negating those trends. That
said, the rally off their last December lows appear to be losing steam.
Volume was down;
breadth mixed.
The VIX was down
8 ½ %, but still ended above both moving averages and in very short-term and
short-term uptrends. Its chart remains
strong which is bad on stocks.
The long bond
was up ½%, closing above its 100 DMA (now support), above its 200 DMA (now
support) and in short and intermediate-term trading ranges. It is also above the lower boundary of its
former long-term uptrend---though technically speaking, that is not all that
significant. However, it does appear
that the rise in long term interest rates (decline in bond prices) is
over.
And, repo rates
surging:
The dollar jumped
¾ %, remaining above both MA’s and in a short-term uptrend. However, it is still within the mid-November
to present consolidation range. So, the chart continues to be technically
strong.
GLD continued to
move up, closing above both MA’s and within a short-term trading range.
Bottom line: the Averages continued
their recovery. While yesterday’s
advance was meager, it still occurred following the release of some pretty
dismal global PMI numbers---which is a plus.
On the other hand, the current advance appears to be losing momentum.
The
long bond continues its advance, accompanied by higher prices in most other
fixed income sectors. It is looking more
and more like we have seen the highs in long rates.
The
dollar closed at the high end of its recent consolidation phase. Longer term, its chart remains strong and will likely
continue to do so as long as there are increasing dollar funding (liquidity)
problems.
Wednesday in the
charts.
***overnight,
Apple delivered very disappointing forward sales and margin guidance, placing
the blame largely on sales in China (i.e. the effects of the trade war). This likely has earnings forecast
implications for (1) big companies with business in China [think Caterpillar,
Boeing]and (2) other tech companies.
Coming on the heels
of the really lousy economic data out of China (see below), I think that we
will get a key test for the Market, i.e. how it reacts to a negative surprise
from a Market darling. In a bull market,
the typical trading pattern would be a quick sell off but the overall positive
investor sentiment would assume that the surprise was a one off for the company
and, therefore, would have not implications for the Market in general. A recovery would soon follow. In a bear market, these kinds of surprises
tend to be interpreted as forebodings of worse things to come, add fuel to
negative sentiment and drive stocks prices lower.
So, I will be
watching how the S&P handles the December 26 low. If it challenges that level and bounces, that
is likely a good sign that a bottom has been made and the worst of any price
decline is over. On the other hand, if
it blows through that December low, then we have to start looking at support
levels, the most solid of which is ~1800.
Fundamental
Headlines
Yesterday’s
economic releases were mixed: month to date retail chain store sales grew
faster than in the prior week while the December manufacturing PMI was below estimating.
Overseas,
the numbers were really poor. December
manufacturing PMI’s in China and Taiwan fell into contractionary territory
while December South Korean exports plunged.
The good news was that the EU manufacturing PMI was in line.
On
the macro level, Trump and congressional leaders met again to discuss the
wall/budget funding disagreement---with no progress toward resolution.
Bottom
line: there is increasing evidence of slowing in global economic growth. I have opined that the US could continue to
grow even in a weak international environment.
However, it is apt to be growing slower.
So, the question is how much of this slower growth is in current
forecasts; and, perhaps more importantly, how much is in corporate earnings
estimates.
And
not to pile on, the above says nothing about QT (both here and in Europe), the
weakness in the Italian banks, the potential political impact of a democratic
controlled house (think impeachment).
Update
on valuations.
Markets
are reflecting increased risk (duh).
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
Weekly
mortgage applications were off 8.5% while purchase applications were down 8.2%.
The
December manufacturing PMI came in at 53.8 versus forecasts of 53.9.
The December ADP
private payroll report showed an increase of 271,000 jobs versus estimates of a
175,000 rise.
Weekly jobless
claims rose 10,000 versus consensus of up 1,000.
International
Other
This
article was clearly written by a gold bug; so, you must take some of this with
a grain of salt. However, he does
provide a great explanation of how the Fed/political class disrupts the
economy.
What
I am reading today
Calculating your paycheck
in 2019.
Xi says Taiwan ‘must and
will be’ reunited with China.
The
best lessons of 2018.
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for Survival’s website (http://investingforsurvival.com/home)
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