The Morning Call
10/25/18
The
Market
Technical
The Averages
(DJIA 24583, S&P 2656) were yesterday’s story, selling off
dramatically. The Dow ended below its
100 DMA (reverting to resistance) as well as its 200 DMA (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 third day (now support; if it remains there through the close
today, it will revert to resistance) and the lower boundary of its short term
uptrend (if it remains there through the close on Friday, it will reset to a
trading range). This is the first
challenge of that uptrend since February 2018.
Volume was up and breadth negative, back in oversold territory.
Buy the dip?
The VIX spiked
22%, clearly retaining its positive chart; and still a negative for stocks.
The long bond rose
¾ %, ending above the upper boundary of its very short term downtrend. If it remains there through the close today,
the trend will be voided. However, it
continues to trade within a short term downtrend and below both moving averages. Still a negative technical picture.
And.
The dollar was
up ½ %, touching its August high. I continue
to believe that UUP will move higher as long as the dollar funding problem
persists.
GLD was up ¼ %, finishing
above its 100 DMA for a second day (now resistance; if it remains there through
the close on today, it will revert to support).
Until the 100 DMA is reset, I remain unimpressed with its pin action.
Bottom line: clearly, yesterday was
painful and, for the first time, I am beginning to believe it could get more so. If the S&P’s 200 DMA reverts to resistance,
that would be bad enough. As I have
noted, this MA has been a major level of support for the last two years. Its collapse would be a major technical negative. However, if the short term uptrend also
resets to a trading range, then we are looking as some serious downside
objectives, i.e. the next visible major support level of any consequence is around
1806.
All that said,
the S&P has today and Friday to recover losses; and given the oversold
state of the Market, we will almost surely get some kind of rally. So it is still too soon to get beared
up. But the force of the rally will be
important, directionally speaking. Just
to confuse matters a bit more, don’t forget that we are getting ever closer to the
powerful positive seasonal pattern in November and December---meaning the lower
the odds of much lower prices.
The long bond,
dollar and gold all acted as safety trades yesterday.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic data was mixed: weekly mortgage and purchase applications were up and
the October Markit flash composite, manufacturing and services PMI’s were
better than anticipated; however, September new home sales (a primary
indicator) were awful.
In addition, the latest
Fed Beige Book was released. It read
pretty much as expected: moderate economic growth, tighter labor markets and
rising input costs. Not a dataset that
would lead the Fed to take its foot off the brakes. On the other hand, there was much handwringing
over trade and that could be a catalyst for ease. That said, there was no indication of a
potential policy change in the narrative.
***overnight, the ECB met and (1) left
rates unchanged and (2) did not change the language regarding the end of QE
starting in December (earlier I mistakenly said that it ended this month). Nothing new.
Bottom
line: as I noted above, the investor psychology is now the story. 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.
News on Stocks in Our Portfolios
Revenue
of $3.61B (-0.3% Y/Y) misses by $110M.
T. Rowe Price (NASDAQ:TROW):
Q3 Non-GAAP EPS of $1.99 beats by $0.05;
GAAP EPS of $2.30 beats by $0.36.
Revenue
of $1.39B (+12.1% Y/Y) in-line.
Revenue
of $29.1B (+18.6% Y/Y) beats by $1.22B.
Sherwin Williams (NYSE:SHW):
Q3 Non-GAAP EPS of $5.68 misses by $0.07; GAAP
EPS of $3.72 misses by $1.04.
Revenue
of $4.73B (+4.9% Y/Y) misses by $80M.
Economics
This Week’s Data
US
September
new home sales fell 5.4% versus estimates of a fractional decline.
The
October Markit flash composite index came in at 54.8 versus forecasts of 54.1;
the manufacturing index at 55.9 versus 55.5; and the services index 54.7 versus
54.0
September
durable goods orders jumped 0.8% versus consensus of -1.5%; but ex
transportation, they rose 0.1% versus projections of +0.4%.
The
September trade deficit was $76.0 billion versus estimates of $74.7 billion.
Weekly
jobless claims rose 5,000 versus forecasts of up 2,000.
International
The
October Markit EU flash composite PMI was reported at 52.7 versus expectations
of 53.9; the manufacturing PMI was 52.1 versus 53.0; the services 53.3 versus
53.4.
Other
What
I am reading today
The
latest on student loans.
A
thought experiment on expanding the house of representatives.
It
is not getting better in Italy/EU faceoff.
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