The Morning Call
10/23/18
The
Market
Technical
The Averages
(DJIA 25317, S&P 2755) traded lower yesterday. Volume declined and breadth was mixed. The Dow ended back below its 100 DMA (now
support; if it remains there through the close on Wednesday, it will revert to
resistance). The S&P finished below
200 DMA (now support; if it remains there through the close on Thursday, it
will revert to resistance). As you know,
this boundary has been a critical support level for the last two years; so any
break will be meaningful. On the other
hand, it was challenged unsuccessfully last week. So I am not going to take yesterday’s pin
action too seriously until we get later in the week or prices really get
hammered (which is happening this morning).
Morgan
Stanley of the current pin action.
The VIX was down
1 ¼ %, but retains its positive chart---meaning it is a negative for stocks.
The long bond
was down again, remaining in short term and very short term downtrends and
below both moving averages. Still a
negative technical picture.
The dollar jumped,
making a second higher high, and resumed its progress towards a challenge of
its August high. It continues to have a
positive technical standing. I still to
believe that UUP will move higher as long as the dollar funding problem
persists.
GLD was down,
remaining below its 100 DMA (now resistance).
After resetting its short term trend to a trading range, there has just
been no follow through to the upside.
Bottom line: the S&P closed below
its S&P 200 DMA---a critical support level.
However, the break was minor. For
the moment, I think that the trading range bounded by its 200 DMA on the
downside and its 100 DMA/upper boundary of its very short term downtrend on the
upside is the more important technical element.
The longer
stocks remain relatively stable in a narrow range, the closer we get to the
powerful positive seasonal pattern in November and December---meaning the lower
the odds of much lower prices. On the
other hand, this earnings seasons continues upbeat but (1) the overall
performance is becoming much less positive and (2) even when companies beat
their estimates their stock prices have been reacting negatively. No wonder stocks are going nowhere.
The long bond
and the dollar both continued to act like rates are going higher. Gold remains in never, never land.
Monday
in the charts.
Fundamental
Headlines
One datapoint yesterday:
the September Chicago national activity index came in slightly below
expectations; but the August reading was revised up significantly, making the
combo a plus.
The big economic headline of the
day was Trump’s statement that he and the GOP congress are working on a
pre-election middle income tax cut. I am
assuming that this is more of a political statement versus an economic
one. So I doubt its import, especially
if the dems take the house in the elections.
This week will be the statistical
mode of this earnings season. I have
commented several times about the good start to earnings season; however as
time has progressed, reports are starting to be either in line with estimates
or below. More importantly, a report
shows that the pin action on earnings beats is changing; that is, stocks of
companies beating estimates have declined---clearly suggesting that the good
news is in the prices. And remember, we
are nearing the point where the impact of the tax cuts on profits will be
annualized---meaning the rate of earnings increases is going to drop
noticeably.
https://www.zerohedge.com/news/2018-10-22/stocks-are-doing-something-they-havent-done-dot-com-bubble
Bottom
line: if stocks continue to be
unimpressed with strong earnings reports, the question is, what takes prices
higher? Possible answers: resolution of
China trade dispute, an easier Fed, stronger than expected economic performance
here and abroad. Each of us has to
decide on the probabilities of any or all of them occurring. At the moment, my odds suggest that my
portfolio needs cash to provide buying power at lower valuations.
And.
Are
the buy the dippers still around?
News on Stocks in Our Portfolios
Revenue
of $13.5B (+18.4% Y/Y) beats by $240M.
Revenue
of $8.15B (-0.2% Y/Y) misses by $260M.
Revenue
of $5.37B (-6.6% Y/Y) beats by $80M.
United Technologies (NYSE:UTX):
Q3 Non-GAAP EPS of $1.93 beats by $0.11;
GAAP EPS of $1.54 misses by $0.23.
Revenue
of $16.51B (+9.6% Y/Y) beats by $360M.
Johnson
& Johnson (NYSE:JNJ) has made a tender offer for the
outstanding shares of Japanese skincare firm Ci:z Holdings that it doesn't
already own for ¥230B ($2.05B) in cash.
It's already the second
largest shareholder of the Japanese firm, with a 19.9% stake through its
affiliate.
J&J is betting the
deal, which will give it ownership of the Ci:z's popular brands, will help it
strengthen its international innovation pipeline.
Economics
This Week’s Data
US
International
Other
FICO
gets creative with credit scores.
Latest
from Italy.
The cost of
tariffs.
What
I am reading today
Three
costly mistakes to avoid.
The
growing pension/retirement crisis.
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for Survival’s website (http://investingforsurvival.com/home)
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