The Morning Call
1/30/18
The
Market
Technical
The indices
(DJIA 26439, S&P 2853) got banged pretty hard yesterday---something new and
different. Still the Dow continued to
trade above the upper boundary of its short term trading range; so there seems
little to be concerned about, at least for the moment. Volume fell; breadth weakened. Long term, the Averages remain robust viz a
viz their moving averages and uptrends across all timeframes. Short term, they
are above the resistance level marked by their August highs, meaning that there
is no resistance between current price levels and the upper boundaries of their
long term uptrends. The technical assumption has to be that stocks are going
higher.
The VIX skyrocketed
25%, clearly in line with its usual inverse relationship with stocks. Though the magnitude of its rise is somewhat
unusual. Its pin action remains
confusing.
The long
Treasury declined ¾ %, continuing its downward trend and moving it near to the
lower boundary of its short term trading range.
It would appear the recent question over follow through is being
answered to the downside; though it remains in a technical no man’s land.
The dollar was
up fractionally, doing little to improve an otherwise sick chart.
GLD fell ½ %,
trading below the lower boundary of its very short term uptrend. If this trend is negated, it would be the
first set back in over two months. Follow
through.
Bottom line: equity
investors seemed to be focused on the declining bond market yesterday, worrying
about higher interest rates and their impact on economic activity and on
valuation measures. The exploding VIX
puts an exclamation on the concern, while GLD lent its support. The dollar appeared unimpressed---perhaps
meaning that dollar investors need to see a lot higher interest rates before
they cease selling. I remain
uncomfortable with the overall technical picture.
Global
diversification (short):
The
honey badger market (medium):
Yesterday
in charts (short):
Fundamental
Headlines
Yesterday’s
economic data was not that earth shaking.
The news was:
(1)
the selloff in
the bond market. As you know from the
technical analysis, this is not just a single day’s poor pin action. TLT has
been breaking support levels since early this month. Not that this means that the bond yields are
going a lot higher for a lot longer; but technically they are off to a good
start. And certainly as I have reiterated
too many times to recall, there are fundamental forces [the unwinding of QE/weakening
dollar] that could drive rates much higher.
That said, I have not altered my own forecast to
reflect a stronger economy [via the tax reform] since I am not yet completely
convinced that the economy is about to lift off and force the Fed to tighten. On the other hand, as I have said too many
times in these pages, a weak dollar could force the Fed to tighten irrespective
of the level of economic strength or inflation.
The bad news could be that I could be right on slow
economic growth but also right on the weak dollar, which would be the nightmare
scenario for the Fed. That is not a prediction; it is an alert.
(2)
more on trade.
The Donald was quoted in the overnight [Sunday night] saying the EU has
taken unfair advantage of the US on trade issues and that needs to change. There was no specifics and no follow through
during the day. So for the moment, I am
not sure what that means.
On the other hand, NAFTA negotiators ended their latest
meeting and chose not to issue joint statement following the latest round of
discussions. Not a good sign. (short):
Bottom line: I
am not going to beat the ‘trade war’ mule again, except to say that tariffs
introduced last week, the seeming lack of comity in the NAFTA negotiations and
the continuing tough language the Donald seems intent on using with our trading
partner is a matter of concern. I am
prepared to give him the benefit of the doubt before the fact; but I am worried
about after the fact.
It is too soon
to know if the bond market is telling us something about the economy and/or Fed
policy, but it has been pointing in the direction of higher rates long enough
that we need to be taking it seriously. And
let me repeat, this is not about the economy, this is about the Market impact
of the latest of the Fed’s many failed attempts to normalize monetary policy
following a period of excessively easy money.
News on Stocks in Our Portfolios
Revenue of $5.34B (-11.4% Y/Y) beats by $110M.
Revenue of $1.29B (+18.3% Y/Y) beats by $20M.
Economics
This Week’s Data
US
The
January Dallas Fed manufacturing index was reported at 16.8 versus December’s
reading of 32.8.
Month
to date retail chain store sales grew slower than in the prior week.
The
November Case Shiller home price index rose 0.7% versus forecasts of up 0.6%.
International
2017
EU GDP grew 2.5%, better than estimates.
December
Japanese retail sales rose 0.9% versus projections of -0.4%.
Other
Update
on big four economic indicators (medium):
The
Fed will ignite the next crisis (medium):
A
survey on companies are spending their tax reform windfall (medium):
Update
on oil pricing (medium):
ECB
doubles down on its dovish comments (medium):
What
I am reading today
China’s
rise is over (medium):
Tuesday morning humor---the wisdom about
bitcoin.
More from Pakistan (medium):
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