Wednesday, January 9, 2019

The Morning Call---S&P 2632 is an important level


The Morning Call

1/9/19

The Market
         
    Technical

The Averages (DJIA 23787, S&P 2574) picked up the pace of the follow through from last Friday’s powerful rally.  That said, both indices finished below both moving averages.   The Dow finished in a very short-term downtrend and a short-term trading range. The S&P is in a short-term downtrend. So longer term, there remains a lot of work to be done to re-establish an uptrend.  For instance, the S&P would have to successfully challenge the upper boundary of its short-term downtrend (~2632) before it makes any sense to start thinking that the worst is over.

Volume flat; breadth positive. 

The VIX fell 4½ %, but still ended above both moving averages and in very short-term and short-term uptrends and remains relatively cheap.  So, this chart remains a negative for stocks.

The long bond was down another ¼ %.  However, it closed above its 100 DMA (now support), above its 200 DMA (now support) and in short and intermediate-term trading ranges and in a very short-term uptrend.  Even though it has now been down three days in a row, no real technical damage has been done.
               
The dollar was up on big volume, finishing above both MA’s, in a short-term uptrend and within the mid-November to present consolidation range. However, it remains near the lower boundary of that range as well as its 100 DMA.  So, a challenge of these boundaries could still be in the offing.  

GLD fell ¼ %, but ended above both MA’s, within a very short-term uptrend and within a short-term trading range.  It remains a healthy chart.

 Bottom line: there may be more upside on a very short-term basis; but, eventually, I think that the lows (i.e. the December 26th low) will get tested.  Of course, the January 3rd higher low could have been that test, but seemed a bit of a weak challenge to me.  So, I think that there are decent odds for a more substantial test to come.

 The long bond investors still don’t seem overly concerned about higher interest rates.  Ditto for the gold bugs.  The dollar is the only indicator that is suggesting that rates could go higher.

Tuesday in the charts.

    Fundamental

       Headlines

Yesterday’s economic data releases were minor indicators but still negative: growth in month to date retail chain store sales slowed from the prior week and November consumer credit rose more than anticipated.

Not a lot in the headlines:

(1)   positive talk on US/China trade
                            
                  ***overnight, talks wrap up.

(2)   Trump has apparently decided not to invoke emergency measures to fund ‘the wall’.  It probably wasn’t constitutional anyway.  So cooler heads prevailed.  While that might eliminate a legal battle with congress (over the power of funding) but it will most likely keep the government closed.

(3)   Brexit continues to promise more UK political/economic turmoil.

Bottom line: the Fed will retake the spotlight today with the release of the minutes from the last FOMC meeting.  Investors will likely be parsing every word for confirmation of the dovish Powell statement last week. 

You know my bottom line on this issue: as long as the Fed continues a QT policy, liquidity shrinks creating credit funding problems and putting downward pressure on asset prices.  But if Fed policy has returned to being a hostage of the Market, then the current asset price adjustment may be over.

At the moment, we just don’t know what the real intent of Powell is; and we likely won’t until we get the numbers on the Fed’s balance sheet run off.

More on valuations (must read):

            Could a stock market decline cause a recession?

            The latest from Doug Kass.

            The latest from Jeff Gundlach.

    News on Stocks in Our Portfolios
 
Accenture (NYSE:ACNacquires Orbium, a management consultancy and tech services provider to the financial services industry.
Terms weren't disclosed.
Orbium is the largest services provider for the Avaloq Banking Suite, software used by more than 150 banks and wealth managers worldwide.

Alliance Automotive Group (AAG), a wholly-owned automotive distribution company of Genuine Parts Company (NYSE:GPC), has completed the acquisition of German Hennig Fahrzeugteile Group, effective today.
The Company expects the acquired business to generate annual revenues of approximately $190M.
Procter & Gamble (NYSE:PG) declares $0.7172/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

Growth in month to date retail chain store sales slowed from the prior week.
           
            Consumer credit in November rose $22.1 billion versus expectations of up $19.0 billion.

Weekly mortgage applications soared 23.5% while purchase applications were up 17.0%.  Much of this rise reflects seasonal factors, i.e. nothing happening between Christmas and New Year, then a sudden surge in activity as everyone gets back to work.

     International

            The November EU unemployment rate was 7.9% versus estimates of 8.1%.

    Other

            Can the unemployment rate tell us anything about a recession?

What I am reading today

            Is character destiny?

                        Things are heating up in France as demonstrations are banned.

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