The Morning Call
1/26/18
The
Market
Technical
The indices
(DJIA 26392, S&P 2839) performance remained mixed (Dow up big, S&P up a
little, NASDQ down a little and Transports down big). Volume was down but still
high; breadth improved. 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 fractionally,
but was once again trading contrary to its normal inverse relationship with
stock prices. So its pin action remains confusing.
The long
Treasury recovered about ¾ %, pushing it back above its 200 moving
average. That raises the question, which
was the outlier? Wednesday’s reset to resistance
or yesterday’s recovery. Follow through.
TLT remains in a technical no man’s land.
The dollar also
recovered but only by three cents. In
other words, it may have only taken a break on its way lower. 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 fell about ½
%, trading more in line with TLT than UUP.
Still its technicals continue to look good.
Bottom line: the
Markets were all over the map yesterday on multiple comments out of Davos. That our ruling class is raising uncertainty
is not surprising; but so far equity investors seem immune to it---sort of like
they have for the past two years.
Nevertheless, the VIX, TLT, UUP and GLD seem to be developing some
heartburn. How long stocks can ignore
this is the question; until they do, the current weight of technical evidence
is that they appear likely to go higher.
I remain
uncomfortable with the overall technical picture.
Commodities
break out (short):
Yesterday
in the charts (medium):
Fundamental
Headlines
Yesterday,
the ECB started out the day with comments, following a regularly scheduled
meeting, which echoed prior statements: the EU economy is strong, the EU is set
to begin unwinding QE in September---with the usual disclaimers [if growth
slows, the ECB could defer tightening and might increase QE].
Then
Mnuchin and Trump took over, throwing Markets into a tizzy. Mnuchin tried to walk back his Wednesday weak
dollar comments but ended up reiterating them.
Next Trump stepped in, trying to do his own walk back of Mnuchin’s
comments and did his best to emphasize that the US wants a strong dollar---though
his comments were less than convincing.
I
should stop at this point and opine that neither the president nor the treasury
secretary should be making pronouncements about the dollar for the simple
reason that Markets listen; and that can lead to volatility in the world’s
leading reserve currency which plays merry hell with global trade. Further, if they are going to do it, at
least, get on the same page because in addition to creating volatility, they
also create uncertainty. A double
whammy.
Finally,
Draghi stepped in and reflected that Mnuchin’s comments were not helpful to
other central banks trying to manage their own country’s currency---reinforcing
the above point.
Bottom
line: it seems like just when you think that the administration is getting its
act together, it goes out and steps on its own dick, again. Certainly, this whole episode with the dollar
is not confidence inspiring. And that comes
on top of the fact that the dollar was already having problems. It also doesn’t help in the ongoing matter of
trade negotiations if our trading partners/opponents (?) if they think we are
going to hammer them with a weak dollar irrespective of how much they may be
willing to compromise.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
December
new home sales fell 9.2% versus expectations of down 7.2%.
December
leading economic indicators rose 0.6% versus estimates of +0.5%.
The
January Kansas City Fed manufacturing index came in at 16 versus forecasts of
14.
December durable goods
orders surged 2.9% versus projections of +0.6; however, ex transportation, they
were up 0.6%, in line.
The
initial estimate of fourth quarter GDP was reported up 2.6% versus consensus of
up 2.9%; the GDP deflator was up 2.4% versus an anticipated rise of 2.3%.
The
December trade deficit was $71.6 billion versus expectations of $69.0 billion.
International
Other
Outlook
for 2018 from Van Hoisington and Lacy Hunt (medium and a must read):
Is
a trade war with China on the way (medium):
What
I am reading today
Why walls work (medium
and today’s must read):
This could be trouble if it turns
out to be true---Mueller hides Saudi royal family connection to 9/11 (medium):
Quote of the day (short):
Is your smart phone controlling your
life (medium and the answer is yes):
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