Tuesday, October 16, 2018

The Morning Call--All eyes on the 200 DMA

The Morning Call


The Market

After remaining in plus territory for most of the day the Averages (DJIA 25250, S&P 2750) faded near the close to end in down for the day.  Traders’ eyes are now on the S&P which retreated off its 200 day moving average, restarting the clock (now support; if it remains there through the close on Wednesday, it will revert to resistance).  I previously noted that this MA has offered major support for the last two years.  Reverting to resistance would be a significant occurrence to the technicians. Volume declined and breadth was mixed.

The VIX fell 9 %, a bit unusual for a down day in stocks, but it retains its positive chart.

The long bond was unchanged.  It remained in an intermediate term downtrend, a long term trading range and below both MA’s.   Still a negative technical picture.

The dollar was down fractionally, but continues to have a positive technical standing.  Though failing to challenge its August high is a bit of a negative.  However, I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD was back in positive territory, finishing above the upper boundary of its short term downtrend for a third day, resetting to a trading range.  This is the first positive technical development for gold in a long, long time.  Follow through.

 Bottom line: the key technical issue at the moment is how the S&P trades around its 200 DMA.  A reversion to resistance would likely have a big negative impact on the technical community’s outlook for the Market.  To be clear, we are only in a challenge phase.  So it is too soon to toll the funeral bells.  But today’s and tomorrow’ pin action are more important than usual.

Taking a step back, it is important to view (Wednesday and Thursday’s pin action) with some perspective---that is, that (the Averages) are barely off their all-time highs.  So it is no time to get beared up.  Even though I have thought that stocks were overvalued for over the last two years and that a selloff was due, it doesn’t mean that mean reversion has started.  On the other hand, every journey starts with a single step.

          GLD’s performance over the last three trading days may be giving a hint as to how the challenge of the S&P’s 200 DMA will be resolved (negatively).

            Monday in the charts.



            Yesterday’s economic data was mixed: August business inventories/sale were in line, September retail were awful, the October NY Fed manufacturing index was above forecast.
            The big headline (at least for me) was the confirmation that the US budget deficit continues to grow.  See below.

            Bottom line: I won’t bother you with another ‘irresponsible fiscal policy’ harangue; but I will repeat my thesis: with the national debt at its level  viz a viz GDP, deficit spending is a drag on economic growth because servicing it usurps monies that would other go to investment/consumption.  And our ruling class is doing at exactly time in the economic cycle that the government should be running a surplus.

    News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW): Q3 Non-GAAP EPS of $4.19 beats by $0.24; GAAP EPS of $1.82 misses by $2.10.
Revenue of $2.83B (+7.2% Y/Y) misses by $10M.

Johnson & Johnson (NYSE:JNJ): Q3 Non-GAAP EPS of $2.05 beats by $0.02; GAAP EPS of $1.44 misses by $0.44.
Revenue of $20.35B (+3.6% Y/Y) beats by $300M.

BlackRock (NYSE:BLK): Q3 Non-GAAP EPS of $7.52 beats by $0.65; GAAP EPS of $7.54 beats by $0.71.
Revenue of $3.58B (+2.0% Y/Y) misses by $60M.


   This Week’s Data


            August business inventories rose 0.5%, in line; sales were also up 0.5%.

The US FY2018 budget was $779 billion up 17% from FY2017.


            October German investor sentiment came in at -24.7 versus estimates of -12.0.

            The Italian government agreed on budget with a deficit that is above EU guidelines.


            Money for nothing and ……….

What I am reading today


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