The Morning Call
2/9/18
The
Market
Technical
The indices
(DJIA 23860, S&P 2501) took another body blow yesterday, raising the first
real technical concern. First, both
ended below their 100 day moving averages; if they remain there through the
close on Monday, they will revert to resistance. Second, both closed below the lower
boundaries of the very short term uptrends; a close there today will negate
those trends. Third, having made a lower
high on Wednesday, they made a lower low yesterday, setting up a potential very
short term downtrend, if they remain below Monday’s close. Still the Averages remain above their 200 day
moving averages as well as in uptrends across all timeframes. Volume rose; breadth was weak and is now in
oversold territory. It is too soon to
alter the technical assumption that stocks are going higher.
The VIX was up
20%, remaining at elevated levels---continuing to exert a negative impact on
the Market.
The long
Treasury declined fractionally which was a bit surprising given the flow of
headlines fearmongering higher interest rates/inflation. However, 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.
Mortgage
rates rise to four year high (short):
The dollar was unchanged;
also a little confusing in the face of the tumult in the stock market but not
so much given the pin action in TLT.
While its chart remains ugly, it is starting to develop a very short
term uptrend, undoubtedly helped along by rising rates (declining bond prices).
GLD was up slightly,
like TLT and UUP not really demonstrating any emotional linkage to the equity
market. It continues to develop a very
short term downtrend.
Bottom line: my
question from yesterday (was Tuesday’s pin action just a pause in a downturn) was
answered with a vengeance. We now have a
lower high and a lower low, so the short term technical assumption is that
prices are going lower. That said, until
the major uptrends are successfully challenged, the long term assumption is
that stocks are simply in a correction in a broader uptrend.
The whackage price
action in the TLT, UUP and GLD continues to baffle me both as they relate to
the equity market and to each other.
One
chart:
Biggest
weekly outflow in mutual fund history (medium):
How
fast do stocks recover after a 4% down day? (short):
Fundamental
Headlines
Yesterday’s
economic stats were both positive: January retail chain store sales and weekly
jobless claims. But again, they were
dwarfed by the Market as well as the three ring circus in Washington.
The
bad news is that overnight, both chambers passed the senate budget compromise
legislation---which removes debt ceiling and adds billions to the budget
deficit (medium):
Meanwhile, the CBO
scored the senate budget deal’s deficit larger ($320 million) than the senate’s own estimate ($300
million)---which is increasing investor anxiety over the growing deficit’s
impact on interest rates (Treasury has to sell more bonds) and Fed policy
(inflationary pressure to unwind QE). (medium):
https://www.zerohedge.com/news/2018-02-08/unleash-debt-why-senate-budget-deal-sending-yields-surging
And the Fed
confirms that it is either clueless or trapped and in denial (medium):
Bottom
line: if ever there was an example of gross mismanagement by our ruling class,
it is the current comedy being played out on Washington. The congress (and perhaps more importantly
the GOP) agreed to a spending increase and the elimination of the debt ceiling
at exactly the time in the economic cycle in which the government should be
running a surplus or at least shrinking the deficit.
Just to put this
in perspective, the addition to deficit from the combination of this bill along
with the tax cut legislation will add $2 trillion (yes, that’s trillion) to the
deficit; compare that to Obama’s $800 billion rescue spending following the
financial crisis. This is exactly what
the GOP did when Bush 2 came to the white house, i.e. spend like drunken
sailors (and the democrats). The only
difference is that national debt was much less.
I don’t want to
get on a three or four paragraph rant here because you have heard it all
before. But the combination of an
economy operating roughly at full capacity coupled with a huge increase in the
deficit on top of a historically high national debt is a recipe for inflation
and a potential nightmare for the Fed.
Of
course, it appears that I am wrong about the impact of the tax bill; so I could
be equally wrong on this score.
Buffett’s
playbook for stock market corrections (medium):
What
the selloff may be telling us about portfolio allocation (medium):
How
to overcome your fear of bonds (medium):
News on Stocks in Our Portfolios
C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.46/share quarterly dividend, in line with
previous.
United Parcel Service (NYSE:UPS) declares $0.91/share quarterly dividend, 9.6% increase from
prior dividend of $0.83.
Economics
This Week’s Data
US
January retail
chain store sales grew at an accelerating rate.
International
Other
A
contrary look at the recent wage data (medium):
Price
changes from 1997 to 2017 (medium and a must read):
Mortgage
delinquency rates increased in the fourth quarter (medium):
Leading
index for commercial real estate falls in January (medium):
Five rules for avoiding
investment disaster (medium):
What
I am reading today
Is legal marijuana more
potent? (medium):
Here is some good news (short):
The FISA court charade (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment