The Morning Call
2/8/18
The
Market
Technical
The indices
(DJIA 24893, S&P 2681) closed down for the day after another violent intraday
roller coaster ride. The Dow ended back
below the lower boundary of its very short term uptrend, while the S&P held
above its comparable level. However,
both remain solidly above their 100 and 200 day moving averages as well as in
uptrends across all timeframes with the exception mentioned above. Volume declined while breadth improved
slightly. The technical assumption remains
that stocks are going higher.
The VIX fell 7 ½
%, again trading in tandem with stock prices versus inversely.
The long
Treasury declined 1% on 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
¾ %. 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 dropped another
½ %, like the dollar, reacting to rising rates.
It has started to develop a very short term downtrend.
Bottom line: Monday,
stocks set a very short term low. Tuesday, they rallied off that bottom. The technical question before us is, does
Wednesday’s decline make Tuesday the next lower higher or will stocks rally and
pusher higher today? In other words, was
Tuesday’s pin action just a pause in a downturn?
The whackage in
the bond and gold markets seem to be pointing to higher inflation (necessitating
a tighter Fed)---not something the stock boys want to see. On the other hand, the stronger dollar would
indicate rising confidence in the US economy.
In short, we
have a pretty muddled technical picture which probably argues for more
downside. Of course, ‘muddled’ is the
operative word, meaning that my opinion is just a wild ass guess.
Fundamental
Headlines
Both
economic stats reported yesterday were mixed: weekly mortgage and purchase
applications and January consumer credit.
We
did get some clarity on the budget/continuing resolution/debt ceiling/immigration
negotiations. Following the house’s
passage of a continuing resolution of Tuesday, the senate struck some kind of two
year grand bargain to raise spending for defense, disaster relief, opioid
treatment and a portion of Trump’s infrastructure wish list and hold an open debate
on immigration next week. The full
senate votes on the measure today and then sends it to the house; where Pelosi
vows to oppose it unless Ryan makes the same deal on an immigration debate as
McConnell.
If
I am reading this correctly, the net effect is to suspend the debt ceiling,
extend the continuing resolution to March 23 and further increase the budget
deficit/national debt via $300 million in additional spending (it has already been
done by lowering taxes). I don’t have to
tell you what I think the likely consequences are, assuming this love stew of
spending gets passed. My guess is that
the bond market didn’t think very much of it either.
***overnight,
the Bank of England met. It left rates
and QE unchanged, but the subsequent narrative was quite hawkish.
Bottom
line: the GOP, at least in the senate, is sticking it to the American
electorate again---promising fiscal rectitude then joining the dems in an orgy
of spending. This at a time in the economic
cycle in which the government should be running a surplus or at least shrinking
the deficit. If passed, it will be
interesting to see the level of heartburn it causes for the Market and, perhaps
more important, for the Fed. The hope
here is that it dies a horrible death.
The
latest from Jim Bianco (medium):
The latest from Jeff
Gundlach (medium)
What happens in mean
reversion (medium and a must read):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
December
consumer credit grew $18.4 billion verses expectations of a $20 billion
increase; however, the November reading was revised up to $31.0 billion from
$28 billion.
Weekly
jobless claims fell 9,000 versus estimates of a 5,000 increase.
International
China’s
January trade surplus narrowed considerably as imports soared.
Other
What
I am reading today
China’s militarization of
the South China Sea (medium):
Should you buy bitcoin?
(medium):
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