Wednesday, October 17, 2018

The Morning Call--Earnings season off to an impressive start

The Morning Call


The Market

The Averages (DJIA 25798, S&P 2809) did a moon shot yesterday, partially on the back of a major short squeeze.  Volume was up only fractionally and breadth improved less than I had expected.  The Dow ended back above its 100 DMA (now resistance; if it remains there through the close on Thursday, it will revert to support).  More important, the S&P finished solidly above its 200 DMA, negating last Thursday’s break.   I have emphasized that this MA has offered major support for the last two years.  Clearly, it has done so once again.

            Update on institutional money flows.

The VIX fell 17 ¼ %, not unusual for a big up day in stocks.  But it retains its positive chart, closing above both moving averages and well within a short term uptrend.

The long bond rose about ¼ %, but remains in short term and very short term downtrends and below both moving averages.   Still a negative technical picture.

The dollar was up fractionally, and 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 down, ending in a short term trading range.  However, intraday it touched its 100 DMA (now resistance) and fell back, suggesting that its recent strength may have limited power.

 Bottom line: the key technical issue at the moment is the S&P negating its break of its 200 DMA, suggesting that it retains its strength as a level of support.  That, in and of itself, will likely relieve technicians concerns.  However, it still has to successfully challenge a very short term downtrend that developed following its late September high.  On the other hand (1) stocks have traditionally traded higher in the months of November and December (2) this earnings season is off to a very upbeat start; if that continues, it should provide additional buoyancy to stock prices.  All that said, I would like to see more technical improvement before returning to my assumption that stocks will challenge the upper boundaries of their long term uptrend. 

            Tuesday in the charts.



            Yesterday’s economic releases were mixed: month to date retail chain store sales and the October housing market index were disappointing; September industrial production was better than forecast, but capacity utilization was down fractionally.

            While the macro data remains unimpressive, as I noted above, third quarter earnings are upbeat and the earnings guidance, which many believed (including moi) would be less than satisfactory, have been better than anticipated.  Of course, we are early in the reporting season; so things can change.  But, at this moment, the season has gotten off to solid, upbeat start.

            Bottom line: the macro data is uninspiring, the government deficit/debt is pushing relentlessly higher, the Fed is tightening, the ECB is tightening and, as has been the case for the last ten years, investors continue to ‘buy the dips’.  Until that psychology changes, none of the aforementioned has any meaning.

            I have already done most of my selling based on stocks that I own that have traded into their Sell Half Ranges.  Any continuation of the yesterday’s rally would offer a chance to sell for those who haven’t done so.  I am not saying liquidate and run for the hills; I am saying that you can’t buy low, if you don’t sell high.

            Making sense of the recent Market gyrations (must read):

    News on Stocks in Our Portfolios


   This Week’s Data


            Month to date retail chain store sales grew slower than in the prior week.

            September industrial production was up 0.3% versus forecasts of up 0.2%; capacity utilization was 78.1% versus expectations of 78.2%.

            The October housing market index was reported at 68 versus estimates of 67.

                Weekly mortgage applications fell 7.1% while purchase applications were down 6.0%.

                September housing starts fell 5.2% versus consensus of -4.9%; building permits were off fractionally versus projections of a 3.5% increase.



            Markets matter more than the ruling class.

            The Fed’s liquidity withdrawal.

            Imitating Japan.

More from the shadow banking industry.

What I am reading today

            Update on Brexit.
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