The Morning Call
2/7/18
The
Market
Technical
The indices
(DJIA 24912, S&P 2495) staged a big recovery yesterday. Intraday, both of the Averages touched and
bounced off their 100 day moving averages and the lower boundaries of their very
short term uptrends. So all trends
remain intact. That said, this kind of
dramatic oversold bounce is not unusual in the midst of a Market waterfall
formation. Volume rose; and breadth improved. While it may be too soon to
pronounce that the worst is over, the technical assumption remains that stocks
are going higher.
The VIX fell
20%, but still closed above the upper boundary of its short term trading range
for a third day, resetting to an uptrend---not a good sign for the bulls.
The long
Treasury declined on big volume. It
remains in a very short term downtrend, a short term downtrend and well below
its 100 and 200 day moving averages. It continues in a technical no man’s land---but
just barely. The only remaining support
level is the lower boundary of its long term uptrend.
The dollar was up
five cents, but did little to improve an otherwise sick chart.
GLD dropped 1%, falling
out of a very short term trading range. Like
TLT, investors felt comfortable selling a ‘safety trade’.
Bottom line: OK,
so stocks have set a very short term low.
What I am focused on now is the
extent of the rally; that is, will the indices reach their former highs and
take them out or not. If they do, the momentum will remain to the upside, the
current stomach churning sell off notwithstanding. If not, then will any subsequent decline take
out Monday’s low? The results should
give us an idea of whether we are in the midst of a hiccup (which was long
overdue) or a reversion to a valuation mean.
Fundamental
Headlines
Yesterday’s
economic data was downbeat---the January trade deficit and month to date retail
store sales were both disappointing.
The ruling class
continues to jerk itself off. Yesterday,
the house passed its version of a continuing resolution; but to insure the senate
dems remained pissed off, Trump says that he is ready to shut down the
government over immigration (short):
Bottom line: the
Market pin action remained the center of attention yesterday, as everyone
breathed a sigh of relief. If volatility
moves lower, investor focus will likely return to earnings reports, the
economic data and the clown show going on in Washington.
The net effect
of the recent price decline did little to alter the overvaluation of stocks. So my strategy remains unchanged: own enough
cash to sleep well if the Market drops 30-50%.
Don’t
bank on strong earnings growth to sustain this market (medium):
Counterpoint:
More
good advice (medium):
Economics
This Week’s Data
US
Month
to date retail chain store sales grew less rapidly than in the prior week.
Weekly
mortgage applications rose 0.7% while purchase applications were flat.
International
Other
Paying
the price for the Fed’s experiment (medium):
The
Fed’s QE unwind accelerates (medium):
What
I am reading today
A skeptical look at the
Buffett/Bezos/Dimon proposal for healthcare reform (a bit long):
New technology uncovers Mayan megalopolis
(medium):
In
investing, simple is better (short):
Boeing’s
new hypersonic aircraft (medium):
The
latest out of Syria (medium):
Update
on student loans [defaults] (medium):
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