Monday, March 19, 2018

Monday Morning Chartology


The Morning Call

3/19/18

The Market
         
    Technical

            The S&P is building a pennant formation, consisting of lower highs (just barely) and higher lows.  The direction it breaks from this pattern usually continues.  Given, the strong support from its moving averages and uptrends, my assumption is that the pennant gets resolve to the upside.  Further supporting that notion is the move down in the VIX (see below).



            The long Treasury sold off on Friday, though on a very short term basis it is in a trading range.  Longer term, the momentum is still down as it remains in a short term downtrend and below its 100 and 200 day moving averages.  However, on the fundamental side, the narrative among investors on the economy/inflation/interest rates is shifting from a stronger economy/higher interest rates and inflation being a given to concern that the economy may not be as healthy as assumed a month ago.  That is showing up in TLT’s pin action.

                And:




            While the dollar is trying to stabilize, the momentum remains to the downside.  UUP price action is not reflecting the economic uncertainty as TLT (if TLT is rising, UUP would normally be declining).  Perhaps, the Kudlow ‘king dollar’ remark is having an impact.



            On Friday, GLD closed below the lower boundary of its short term uptrend; if it remains there through the close tomorrow, it will reset to a trading range.  It still has minor support just below its current price as well as from its 100 and 200 day moving averages.  Like the dollar, it is out of sync with TLT (if rates are declining, GLD usually rises); but also like UUP it may be reacting, at least short term, from the Kudlow ‘buy the dollar, sell gold’ statement.



            The VIX continues to lose steam, despite a lot of intraday volatility.  As you can see, it traded out of a pennant formation to the downside which historically has meant lower values.  That leaves it in a very short term downtrend, a short term trading range but above its 100 and 200 day moving averages.  This chart suggests a lower VIX and that, in turn, generally means higher stock prices.



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