The Morning Call
10/26/18
I am off to my annual pledge class reunion. No Closing Bell. Back on Monday.
The
Market
Technical
The pin action of
the Averages (DJIA 24984, S&P 2705) continues to be the main headline. Yesterday, they bounced hard off of an
oversold condition; though they did not recover all of Wednesday’s losses. The Dow ended below its 100 DMA (now
resistance) as well as its 200 DMA for a second day (now support; if it remains
there through the close next Monday, it will revert to resistance).
The S&P
finished below its 200 DMA for a fourth day---sufficient to make the reversion
to resistance an easy call. At the risk
of being repetitious, this MA has been major support for the S&P for the
last two years. So I consider this
development more negative than would ordinarily be the case. On a more positive note, the S&P did
recover above the lower boundary of its short term uptrend, negating Wednesday’s
break.
Volume declined;
and, as you might expect, breadth improved
The VIX fell
only 4% which is very little on a 400+point up day for the Dow. Its chart remains positive---a negative for
stocks.
The long bond
was down ½ % on heavy volume, but remained above the upper boundary of a very
short term downtrend---voiding that trend.
Nevertheless, it closed within a short term downtrend and below both
moving averages. Still a negative
technical picture.
China vows to
defend the yuan---meaning sales of its foreign reserves, i.e. US Treasuries, to
buy the yuan. Not a plus for interest
rates.
The dollar was
up ¼ % on big volume, finishing above its August high---a clear plus. I continue to believe that UUP will move
higher as long as the dollar funding problem persists.
GLD fell ¼ %, but
still ended above its 100 DMA for a third day, reverting to support. So the technical picture is improving a bit
after a long negative run.
Bottom line: the good news is that the
S&P voided the break of its short term uptrend; and the Dow still has the
potential of negating the current challenge of its 200 DMA.
The bad news is
that the S&P’s 200 DMA, which has been a source of considerable technical
support for the last two years, has reverted to resistance in a meaningful way. In addition, the VIX hardly budged on major
up day, meaning there continues to be a lot of negative sentiment. If today’s follow through to the upside is
weak and/or the S&P re-challenges its short term uptrend, which suggests
more downside to come. On the other
hand, we are getting ever closer to the powerful positive seasonal pattern in November
and December---meaning the lower the odds of much lower prices.
***overnight, we
may gotten the answer on direction. Amazon and Google had disappointing
quarterly reports, issued disappointing guidance and the stocks are off. If the tech stocks, which have led this
Market for years, start to break down, the odds of the indices regaining their early October highs
will slip considerably to say nothing of the odds of their challenging the
upper boundaries of their long term uptrends.
The long bond
and dollar were back trading like interest rates are going higher; but GLD
seemed to maintain its status as a safety trade.
Is
the Market predicting a recession?
The recent
decline in historical perspective.
Fundamental
Headlines
Yesterday’s
economic numbers were negative: the September trade deficit, weekly jobless
claims and the October Kansas City manufacturing index all disappointed;
September pending homes sales were better than forecast; while the headline September
durable goods order (primary indicator) has better than expected, ex
transportation, it was quite weak. These
are not great stats at a time when suddenly investors are waking up to the fact
the economy is not nearly as awesome as the ruling and chattering classes would
have us believe.
Bottom line: The bad news out there; but there has been bad news out there for a
long time. The difference this time is investor
perception. If that is turning negative
on a longer term basis, then there could be a lot more downside because stocks
are so richly valued. I still want to
see the confirmations of the Averages’ challenges of their 200 DMA and the S&P’s
challenge of its short term uptrend before getting really Market negative. However, I am happy with my cash.
When
stocks fall 10%.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
September
pending home sales rose 0.5% versus estimates of unchanged.
The October
Kansas City Fed manufacturing index was reported at 8 versus September’s
reading of 13.
The initial
estimate of third quarter GDP came in at 3.5% versus expectations of 3.3%; the
price deflator was 1.7% versus forecasts of 2.0%.
International
Other
Stalling new home sales.
Brexit back on hold.
Is Chinese luck running
out?
What
I am reading today
Have the rich really gotten all the
gains from economic growth?
Humble
exits.
14 investment principles.
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