Wednesday, October 31, 2018

The Morning Call--Too soon to be negative, too soon to be positive


The Morning Call

10/31/18

The Market
         
    Technical

The Averages (DJIA 24874, S&P 2682) staged a big rally yesterday.  However, the Dow ended below its 100 DMA (now resistance) as well as its 200 DMA (now resistance) and below the upper boundary of its very short term downtrend. 

The S&P finished below both moving averages, the upper boundary of a very short term downtrend and slightly below the lower boundary of its short term uptrend for the third day.  Ordinarily, I would reset the short term trend to a trading range; however, given its fractional close below that boundary, I am holding off the call for another trading day.

Volume advanced, remaining elevated; breadth improved.

The VIX fell 5 ½ %, putting, roughly though not quite, back in (inverse) sync with stock prices after two days of aberrant behavior.  However, remember that in both of those days, its performance had suggested either complacency or the conviction that stocks are near a bottom.  That may have happened yesterday.

The long bond was down ½ %, closing within a short term downtrend and below both moving averages.   Still a negative technical picture.

The dollar was up another ½ %, finishing above its August high and starting to build a very short term uptrend.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

And:

GLD fell ½ %, voiding the recently established very short term uptrend, closing just barely above its 100 DMA (now support) and continuing to fade its recent positive price performance.

 Bottom line: in recent comments, I have opined that, despite the negative volatility, it was too soon to get bearish.  Today, despite a great day in the Market, I think it too soon to believe that the worst is over.

The long bond and dollar continue to trade like interest rates are going higher while GLD wanders aimlessly in the desert.

                Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic releases were mixed: month to date retail chain store sales improved; the August Case Shiller home price index was in line; and the revised September/October consumer confidence index was a wash.

            No other meaningful developments.

Bottom line: the Market itself is the news; and the key issue is investor perception.  It seems to me to be shifting.  A year ago, bad news was ignored and any dip was bought.  Now, it seems good news is being ignored and the rips are being sold.  And the question is, how long will this change in sentiment last?  I have no idea; but I am watching the Markets’ reaction to new developments and the technicals for the answer.

I am happy with my cash.
                       
            The contracting P/E.

    News on Stocks in Our Portfolios
 
C.H. Robinson Worldwide (NASDAQ:CHRW): Q3 GAAP EPS of $1.25 beats by $0.07.
Revenue of $4.29B (+13.5% Y/Y) in-line.

Automatic Data Processing (NASDAQ:ADP): Q1 Non-GAAP EPS of $1.20 beats by $0.09; GAAP EPS of $1.15 beats by $0.05.
Revenue of $3.32B (+7.8% Y/Y) beats by $40M.

Economics

   This Week’s Data

      US

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

            The August Case Shiller home price index rose 0.1%, in line.

            October consumer confidence came in at 137.9 versus forecasts of 136.3; the September reading was revised from 138.4 to 135.3.

                Weekly mortgage applications fell 2.5% while purchase applications were off 2.0%.

            The October ADP private payroll report showed job gains of 227,000 versus consensus of 178,000.

            The third quarter employment cost index rose 0.8% versus expectations of +0.7%.

     International

            The October Chinese manufacturing PMI came in at 50.2 versus estimates of 50.6; the nonmanufacturing was 53.9 versus forecasts of 54.6.

            Third quarter EU (preliminary) GDP was +0.2% versus projections of +0.4%.

            The BOJ met and (1) lowered its estimate of 2018 GDP growth and (2) left interest rates and QE unchanged.

    Other

            Trump tariffs backfiring.

                        Capex fears.

What I am reading today

           

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