Friday, November 22, 2019

The Morning Call---Market quietly working off overbought condition


The Morning Call

11/22/19

The Market
         
    Technical

The Averages (27766, 3103) continued to fade yesterday, but keeping the current consolidation off a very overbought condition quite mild.  Breadth was weak again as the overbought condition gets worked off.  Volume fell and the VIX was up 2 ¾%.  On the other hand, the Dow negated its very short term uptrend and the S&P will do so today in the absence of a rally. 

The bond market retreated 5/8%, but remained above its 100 DMA for a second day (now resistance; if it remains there through the close today, it will revert to support).  If the challenge is successful, the downward momentum in TLT will clearly be over.  The only remaining negative is that it is still in a very short term trend of lower highs.

The dollar was up 1/8%, holding above the lower boundary of its short term uptrend.

Gold was down ½ %, retreating from both the upper boundary of its very short term uptrend and its 100 DMA (now resistance).

The UUP, TLT and GLD are all nearing or in the process of challenging key support/resistance levels which if successful would not only mark a change in momentum but also imply a reversal in economic perceptions.  Were TLT and GLD to successfully challenge the aforementioned resistance levels and the dollar hold its uptrend, it would suggest a flight to safety.  If the dollar breaks down, it would imply a weaker economy.

            Thursday in the charts.

    Fundamental

       Headlines

Yesterday’s data was upbeat.  While weekly jobless claims were disappointing,  October existing home sales (primary indicator) and the November Philadelphia Fed manufacturing index were markedly positive.

Update on recession odds.

            One of the economic positives that I have consistently listed is the decrease in the regulatory burden on industry.  While much of what we have seen to date supports that, this piece points out that there is another side to that coin.
  
            Overseas, the November flash EU consumer confidence index was slightly better than anticipated.
 
            Bottom line: aside from the political circus and the US/China trade circle jerk, it was a quiet day as the Market calmly works off an overbought condition.  Nothing has changed.
 
            For the bulls.

            Making money versus sounding smart.

    News on Stocks in Our Portfolios
 
Tiffany (NYSE:TIF) declares $0.58/share quarterly dividend, in line with previous.

Brown-Forman (NYSE:BF.B) declares $0.1743/share quarterly dividend, 5% i
increase from prior dividend of $0.1660.

Home Depot (NYSE:HD) declares $1.36/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

October existing home sales rose 1.9% versus forecasts of up 1.4%.

     International

            The November flash EU consumer confidence index was -7.2 versus consensus of -7.3.
            The October Japanese CPI was 0.0%, in line; the November flash manufacturing PMI was 48.6 versus 48.7,  the flash cervices PMI was 50.4 versus 50.0, the flash composite PMI was 49.4, in line.

            Q3 German GDP growth was +0.1%, in line; its November flash manufacturing PMI was 43.8 versus 42.9, the flash services PMI was 51.3 versus 52.0, the flash composite was 49.2 versus 49.4.

            The November EU flash manufacturing PMI was 46.6 versus estimates of 46.4, the flash services PMI was 51.5 versus 52.5, the flash composite PMI was 50.3 versus 50.9.

            The November UK flash manufacturing PMI was 48.3 versus forecasts of 49.0, the flash services PMI was 48.6 versus 50.0


    Other

            The economic viability of sanctions.

            I have often voiced skepticism about the ‘reported’ Chinese economic data, opining that it is just made up.  This article addresses that issue.

What I am reading today

           

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Thursday, November 21, 2019

The Morning Call--Trade talk ping pong


The Morning Call

11/21/19

The Market
         
    Technical

The Averages (27821, 3108) had their worst day in almost two months, though. In absolute terms, their decline was not all that much especially on a day when we got lousy trade headlines.  Breadth was weak again.  But I have been noting that the Market was getting very overbought condition---for how long?  Oddly, the VIX was down which suggests that investors are not that concerned.  In the short term, more downside should be expected.  Volume rose again which is the opposite of what you want in a selloff.  Still, momentum remains to the upside though those nagging October 11th gap up opens need to be closed.

The bond market was rose another 1 %, finishing above its 100 DMA (now resistance; if it remains there through the close on Friday, it will revert to support).  If the challenge is successful, the downward momentum in TLT will clearly be over.  The only remaining negative is that it is still in a very short term trend of lower highs.

The dollar was unchanged, holding right on the lower boundary of its short term uptrend.

Gold advanced seven cents, and is that much nearer to challenging both the upper boundary of its very short term uptrend and its 100 DMA---which if successful would halt its current downward momentum and point to a weaker economy.

The UUP, TLT and GLD are all nearing or in the process of challenging key support/resistance levels which if successful would not only mark a change in momentum but also imply a reversal in economic perceptions.  Were TLT and GLD to successfully challenge the aforementioned resistance levels and the dollar hold its uptrend, it would suggest a flight to safety.  If the dollar breaks down, it would imply a weaker economy.

            Wednesday in the charts.

    Fundamental

       Headlines

There was only one minor datapoint released yesterday.  Weekly mortgage applications were down but purchase applications were up.

The latest business cycle  risk report.
    
            Overseas, the October Japanese trade surplus and October German PPI were both disappointing.

The Fed released the minutes of its latest FOMC meeting, the bottom line of which didn’t change from the narrative that we have heard of late: no more rate cuts, but no increases even if the economy starts to heat up and NotQE until at least April. 

***overnight, ECB semi mea culpa.

On trade:

(1)   the house joined the senate in supporting the Hong Kong protestors which surely will not make a trade deal any easier.

Here is a pessimist’s view of congressional support for the protestors.

(2 ) White House sources suggest that there may not be a Phase one deal by                          December.

                                I thought that the following quote from Zerohedge adequately reflects the state of US/Chinese trade negotiations;

‘The barrage of news, facts, rumor, innuendo, speculation and outright lies, started around noon on Wednesday, when Reuters reported that the trade deal could be delayed into 2020, while Global Times' EIC sniped periodically from his twitter account warning that China is ready for full-blown trade war. Futures then staged their latest miraculous comeback, gravitating around the "gamma gravity" of S&P 3,100 before the House passed the Bill of support for Hong Kong protestors just after 5pm, once again spooking futures, especially after Bloomberg reported that Trump would likely sign the bill. Futures then slid to session lows again before rebounding on a Bloomberg report that China's top trade negotiator Liu He was "cautiously optimistic" if "confused" at a dinner on Wednesday, even if Bloomberg failed to point out that due to the magic of time zones, the dinner took place some 12 hours earlier. A few hours later, around 2am, futures pushed to session highs after China's commerce ministry said that China will "strive to reach an initial trade agreement" with the United States as both sides keep communication channels open. The good mood lasted for about an hour, when senior Chinese diplomat Wawng Yi said China "resolutely opposes" US lawmakers passing the Hong Kong human rights bill. Then, pessimism quickly turned to optimism just after 5am when the WSJ reported that China invited US trade negotiators to Beijing for further talks. The burst higher quickly faded when algos read a little deeper into the article to find that the phone call invitation took place last week, long before all the latest turmoil took place. As the WSJ added "US negotiators said they would be willing to meet in person, but would be reluctant travel all the way to China, unless they make it clear that it would make commitments on IP protection, forced technology transfers and ag purchases." Needless to say, there was no trip.

                                ***this just in, sources say US may delay implementation of December 15 tariff increases even if no deal has been reached.


                        (3 ) the risk of a trade war with the EU remain.

            Bottom line: in my opinion, the calm with which investors took the lousy trade news yesterday is likely a function of the prevailing sentiment that the Fed has their back (i.e. will continue to pursue NotQE with abandon).  As long as NotQE is in play, I believe that stocks will continue to work their way higher, valuations be damned.

            Valuations from Dr. Ed.

More on valuations.

    News on Stocks in Our Portfolios
 

Economics

   This Week’s Data

      US

            Weekly jobless claims rose 3,000 versus expectations of a 7,000 decline.

            The November Philadelphia Fed manufacturing index came in at +3 versus estimates of -7.

     International

    Other

            Modern Monetary Theory comes to congress.

            Legendary trader turns bearish on oil.

What I am reading today

            The real story behind Ford vs Ferrari

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Wednesday, November 20, 2019

The Morning Call--Stocks finally take a break


The Morning Call

11/20/19

The Market
         
    Technical

The Averages (27934, 3120) drifted lower yesterday. Breadth was weak for the first time since late October---something that shouldn’t be surprising given the Market’s overbought condition.  The VIX rose in harmony.  In the short term, more downside should be expected.  Volume rose which is the opposite of what you want in a selloff.  Still, momentum remains to the upside though those nagging October 11th gap up opens need to be closed.

The bond market was rose 7/8 %, finishing right on its 100 DMA (now resistance).  A successful challenge of this level would suggest a weakening economy/flight to safety.

The dollar was 1/8%, holding right on the lower boundary of its short term uptrend.

Gold advanced nine cents, and is that much nearer to challenging both the upper boundary of its very short term uptrend and its 100 DMA which if successful would halt its current downward momentum and point to a weaker economy.

The UUP, TLT and GLD are all nearing support/resistance levels which if successfully challenged would not only mark a change in momentum but also imply a reversal in economic perceptions.  Were TLT and GLD to successfully challenge the aforementioned resistance levels and the dollar hold its uptrend, it would suggest a flight to safety.  If the dollar breaks down, it would imply a weaker economy.

            Tuesday in the charts.

    Fundamental

       Headlines

While two of yesterday’s economic releases were negative (the November housing index and month to date retail chain store sales), the one positive number was October housing starts, a primary indicator, and clearly a plus for the economy.

            Overseas, September EU construction output was very disappointing.

            On trade, I found this interesting article discussing how US companies are doing high tech research for China.  In other words, it looks like the US has been actively (and freely) contributing to the technology transfer to China---a circumstance that could easily remedied if Trump is serious about halting that transfer.  Ah, the blessings of a bureaucracy.

***overnight, China threatened retaliation over US legislation supporting protesters in Hong Kong.

            On my favorite subject, I will begin this series of articles with one from Ron Paul deriding the Fed for its irresponsible monetary policy which has led to the misallocation and mispricing of assets.

            The first significant manifestation in the US of the mispricing and misallocation of assets stemming from QEInfinity was in the oil (shale) industry.  Now come the ‘grave dancers’ to rationalize the industry.

            It now appears that the retail market will become the second major casualty.

            And it will only get worse.

            Bottom line: equities are overvalued.  I believe that the current irresponsible monetary and fiscal policies are negatively impacting corporate financial stability and earnings power.  So, that overvaluation will only get worse as long as those policies persist.  At the moment, NotQE is aiding and abetting investors/speculators by convincing them that the Fed has their back.  Herb Stein famously said that something that can’t go on forever, won’t.  While I am not suggesting that investors run for the hills (I am ~50% invested in equities and will remain that way), I am saying that they should have enough cash that will allow them to feel comfortable in a major market sell off.

            A preview of Q4 earnings season.
           
    News on Stocks in Our Portfolios
 
BlackRock (NYSE:BLK) declares $3.30/share quarterly dividend, in line with previous.  

Economics

   This Week’s Data

      US

Month to date retail chain store sales declined versus the prior week.

            Weekly mortgage applications fell 2.2% but purchase applications were up 6.7%.

     International

            The October Japanese trade surplus was Y17.3 billion versus estimates of Y301.3 billion.

            October German PPI was -0.2% versus consensus of 0.0%.

    Other

            This is an interesting take on ‘the burden’ the national debt places on future generations.  I think what the author is missing is that current interest rates are not based on future expectations but on the need to chase yield in low rate environment created by an irresponsible Fed policy.

            Democrats tax proposal would fall disproportionally on blue states.

What I am reading today

            The anniversary of the Gettysburg Address.

            Is bitcoin really an uncorrelated safe haven?

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Tuesday, November 19, 2019

The Morning Call--Powell trumps economy


The Morning Call

11/19/19

The Market
         
    Technical

The Averages (28036, 3122) inched ahead yesterday.  Breadth was strong and pushed further into overvalued territory.  However, the VIX was up 3 ½% (unusual for an up day in stocks) which gives the indices room to become more overbought. Volume, as usual, was down.

So,  momentum remains to the upside; but there are still some short term negatives:  (1) October 11th gap up opens need to be closed and (2) the VIX and breadth suggest equities are overbought.

The bond market was off 1/8 %.  It is currently trading between an easily discernable resistance level (100 DMA) and an equally defined support level (the lower boundary of its very short term uptrend).  A successful challenge of one of these levels should provide directional information.

The dollar fell 1/8%, ending right on the lower boundary of its short term uptrend.

Gold rose 3/8%, and is nearing a challenge of both the upper boundary of its very short term uptrend and its 100 DMA which if successful would halt its current downward momentum.

The UUP, TLT and GLD are all nearing support/resistance levels which if successfully challenged would not only mark a change in momentum but also imply a reversal in economic perceptions. 

            Monday in the charts.

    Fundamental

       Headlines

            Only one stat released yesterday.  The November housing index was below expectations.

            Update on big four economic indicators.

            No data from overseas.

            Why global economic growth isn’t coming.

            World Trade Organization barometer suggests global economic growth continues to plunge.

            In other news:

            Early one, there were continuing signs of progress in the US/China trade talks.  Though later in the day, there were reports out of China that those earlier reports were too optimistic.  In other words, who knows?

            In addition, there was a surprise Trump/Powell meeting in which Powell hung tough.

            Bottom line: everyday the indices and major sectors of the Market get ever more overvalued notwithstanding mediocre if not lousy economic data and the intraday headline reversals on trade.  Thank you NotQE.  History says that as along as the Fed pursues its current irresponsibly accommodative monetary policy, asset prices will go higher---until investors lose faith in the Fed.

            Enjoy this Market while it lasts; but it makes sense to be building cash to provide some stability and serve as a source of buying power when stock prices are lower.

            When will the party get out of hand?

            Morgan Stanley’s outlook for 2020.

            Dividend growth expected to slow in 2020.

    News on Stocks in Our Portfolios

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

Genuine Parts Company (NYSE:GPC) declares $0.7625/share quarterly dividend, in line with previous.

Medtronic (NYSE:MDT): Q2 Non-GAAP EPS of $1.31 beats by $0.03; GAAP EPS of $1.01 beats by $0.15.
Revenue of $7.71B (+3.0% Y/Y) beats by $50M.

Home Depot (NYSE:HD): Q3 GAAP EPS of $2.53 in-line.
Revenue of $27.22B (+3.5% Y/Y) misses by $290M.

Economics

   This Week’s Data

      US

            The November housing index was reported at 70 versus estimates of 71.
    
            October housing starts rose 3.8% versus forecasts of +0.6%; building permits were up 5.0% versus 0.0%.

    International

            September EU construction output fell 0.7% versus consensus of +2.7%.

    Other

            Uncle Sam’s debt explosion.

            The road to default.

            NotQE raising market concerns.

What I am reading today

            Losing sight of what is important.
            Quote of the day.

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