The Morning Call
10/17/18
The
Market
Technical
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.
Fundamental
Headlines
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
Economics
This Week’s Data
US
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.
International
Other
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.
Update on Italy.
Quote of the day.
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