The Morning Call
1/25/18
The
Market
Technical
The indices
(DJIA 26252, S&P 2837) turned in a mixed performance (Dow up, S&P down).
Volume was up, breadth mixed. Long term,
they 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 rose 3%,
putting it well above the lower boundary of its short term trading range. I don’t think that its pin action did
anything to clarify the issue before us: whether or not it is re-establishing its
normal inverse relationship with stock prices.
The long
Treasury got slammed. It closed well below
its 200 day moving average for a fourth day, reverting to resistance. While TLT remains in a technical no man’s
land, its recent pin action seems to be pointing to a resolution on the
downside (higher rates, stronger economy).
The dollar had an
even worse day, falling 1% on volume. I remain
of the opinion that a declining dollar is not an economic positive---in that,
ultimately it will require action by the Fed to defend it (i.e. higher interest
rates).
GLD popped 1 ¼%. That keeps it in line with the declining
dollar but at odds with rising interest rates.
Bottom line: I am
paying close attention to all the indicators (higher VIX, lower bonds, a
terrible dollar and higher gold) that are suggesting problems for stocks. That said, none of this seems to matter to
the equity boys and until it does, the current weight of technical evidence is
that stocks appear likely to go higher.
I remain
uncomfortable with the overall technical picture.
Stock
market reversals can cause a recession (medium):
Gauging contemporary bubbles (short):
Yesterday
in charts: (short):
Fundamental
Headlines
The
bulk of the talk among the chattering class yesterday was focused on the news
out of Davos. Specifically, Mnuchin’s
comments that a weak dollar was a plus for the US economy. When I read that yesterday morning I was
dumbfounded. A US Treasury secretary
just doesn’t address a world forum and tell them that a weak dollar is
great. First, it suggests anything but ‘make
America great again’---global investors bailing out of the dollar because the
government’s policy is to let it go lower does not indicate national economic
strength. Second, it is exactly what the
US (including Trump, by the way) has been criticizing China of doing for the
past ten years (weakening its currency to improve trade). Third, while a weak dollar may be great for
international corporations that do a lot of exporting, it hurts everyone else in
the economy---not the least of which is the consumer (read, the
electorate). I brought up the potential problem
of a weak dollar in last week’s Closing Bell.
I had no idea that our ruling class would throw gasoline on this fire so
quickly.
Davos
weak dollar and more tariffs talk (medium):
Trump’s
consumer ‘last’ trade policy (medium):
http://www.aei.org/publication/putting-trumps-american-consumers-last-trade-policy-into-perspective/
Is
a weak dollar really good for trade (medium)?
Bottom
line: I am not going to be repetitious on the adverse impact of a weak dollar
and overly aggressive (protective) approach to trade relations. Hopefully, all that we are seeing is ‘the art
of deal’ played out on the international stage; and equally hopefully, Trump
knows how not over play his hand (like he did in Pakistan). Much good could come of this; if it is all
bluff. If it is not, not so much.
More
on valuation (medium):
News on Stocks in Our Portfolios
Revenue of $3.63B (+6.8% Y/Y) beats by $90M.
Revenue of $2.63B (+6.5% Y/Y) beats by $60M.
Revenue of $3.98B (+43.2% Y/Y) beats by $40M.
Revenue of $2.95B (+11.7% Y/Y) beats by $120M.
Praxair (NYSE:PX) declares $0.825/share quarterly dividend, 4.8% increase from
prior dividend of $0.7875.
Revenue of $7.99B (+9.0% Y/Y) beats by $110M.
Revenue of $12.9B (+34.8% Y/Y) beats by $920M.
Economics
This Week’s Data
US
The
January composite flash PMI came in at 53.8 versus expectations of 54.0; the
manufacturing PMI was 55.5 versus 55.0; the services PMI was 53.3 versus 54.0.
December
existing home sales dropped 3.6% versus estimates of down 1.0%.
Weekly
jobless claims rose 17,000 versus consensus of up 20,000.
International
January
German business confidence came in higher than forecasts.
Other
Savings
rate the lowest in a decade while credit card debt soars (medium):
LA
port traffic increases (short):
Financial
conditions the easiest since 2000 (medium):
What
I am reading today
A
change in US foreign policy (medium):
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