The Morning Call
2/6/18
The
Market
Technical
The indices
(DJIA 24345, S&P 2466) had a record (on points) down day. However, the only support level that was
challenged was the lower boundary of the Dow’s very short term uptrend. Not the S&P’s very short term uptrend, not
the 100 or 200 day moving averages for either; certainly not the major trends of
all timeframes. Volume rose. Breadth weakened, as you would expect; though
looking at the flow of funds and on balance volume, you would never know the
Dow was down 1,100 points. The technical assumption remains that stocks are
going higher.
The VIX was up 115%,
clearly leaving it above the upper boundary of its short term trading range for
a second day. If it closes above that
level today, the short term trend will revert to an uptrend. I would note that there is some inconsistency
in the VIX being up that much and stocks not being down more than they
were. So it shouldn’t surprising today
if either the VIX or stock prices fall.
This is a must read
article. It explains how and why this
Market is in free fall: the impact that the machines, programmed trading and
the ‘short the VIX’ crowd have had on this decline. Note that there is absolutely nothing
fundamentally driven by this pin action:
And:
The long
Treasury was up 1% on big volume---likely the result of its ‘safety trade’
status. However, it remains in a very
short term downtrend, closed below the lower boundary of its short term trading
range for the third day, resetting to a downtrend and well below its 100 and
200 day moving averages. It continues in a technical no man’s land but near its
lower level.
The dollar was up
fractionally, but did little to improve an otherwise sick chart and certainly didn’t
demonstrate any quality of a ‘safety trade’.
GLD rose, though
not as much as I thought it would. However,
it is stabilizing, so the chart continues to look good.
Bottom line: as
unsettling as the last few trading days have been, the worse we can say, at
this moment, is that we are in a correction from a substantially overbought
Market. What I am focused on now is the
extent of any ensuing 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 the prior 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.
More
on valuation:
Fundamental
Headlines
Yesterday’s
economic news was mixed with the January Markit services PMI declining while
the ISM nonmanufacturing index rose.
However, this will be a very slow week for data; so the headlines will
be coming from another direction.
Not
the least of which is the continuing clusterf**k in DC. The next couple of weeks will pose a number
of challenges to our ruling class, starting with a house vote on continuing
resolution currently scheduled for today.
Then there is the budget, the debt ceiling and the immigration
legislation---any one of which could generate concerning headlines.
The latest on the status
of immigration legislation (medium):
Bottom
line: the Market pin action was the center of attention yesterday and will
likely remain so until the current turmoil subsides. It is important to point out that nothing has
changed in the gathering strength of the economy. So whatever fear is being manifest, it has
little to do with the underlying growth fundamentals.
However, if the
recent decline in bond prices is an indication of a tightening Fed or rising
inflation, then a change in valuations could be in process.
For
the optimists (short):
Why
you need bonds in your portfolio (medium):
The
latest from John Mauldin (medium):
Signs
of a blip or something else (medium):
What
you control (short):
Are
Markets coming to terms with the punch bowl running dry (medium)?
News on Stocks in Our Portfolios
Revenue of $5.48B (+21.8% Y/Y) beats by $240M.
Revenue of $3.82B (+18.6% Y/Y) beats by $100M.
PepsiCo (NYSE:PEP) declares $0.805/share quarterly dividend,
in line with previous.
Revenue of $3.08B (+5.5% Y/Y) beats by $30M.
Economics
This Week’s Data
US
The
January Markit services PMI came in at 53.3, in line.
The
January ISM nonmanufacturing index was reported at 59.9 versus expectations of
56.2.
The December trade
deficit was $53.1 billion versus estimates of $51.9 billion.
International
January
German factory orders were almost double consensus, while the construction PMI
was much better than anticipated.
Other
Light
vehicle sales per capita (medium):
Lumber prices
rising (short):
Bankruptcy
filings decline (short):
The good news is
that the government is finally starting to audit its spending; the bad news is
the Pentagon can’t account for $800 in spending (medium):
What
I am reading today
Six ways to tell if your retirement
plan is on track (medium):
Front running the Fed (medium):\
As you know, I have had a hard-on
for the big banks since they sparked the financial crisis. Congress and the Fed subsequently tightened
up the rules; but bank managements basically escaped their crimes
untouched. Well, Friday, the Fed at
least, slapped some hands at Wells Fargo (medium):
The Earth’s magnetic field is
shifting (medium):
Quote of the day (short):
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