The Morning Call
11/30/18
The
Market
Technical
Not
surprisingly, the Averages (DJIA 25338, S&P 2727) gave back a little of
Wednesday’s monster advance, leaving their charts broken on a short term
basis. Both are below their respective 100
DMA’s; both are now in a short term trading range; both continue to develop
very short term downtrends; and both have now closed last Tuesday’s gap down
open. The S&P remains below its 200
DMA.
On the other
hand, (1) the Dow traded above its 200 DMA for a second day [now resistance; if
it remains there through the close next Monday, it will revert to support], (2)
both indices remain solidly in intermediate and long term uptrends, (3) we are in
a historically strong seasonal period for stock prices and (4) both made a higher
low off the late October low.
I think the technical key here is the 200
DMA’s: (1) they are the first major resistance point in this rally and (2) before
being broken, they were a major source of support for both indices in the last year. Typically, a support level which sustains
multiple challenges, then breaks, will offer significant resistance on the way
back up. So before raising the odds of the
Averages challenging their all-time highs or the upper boundaries of their long
term uptrend, I need to see both successfully challenge their 200 DMA.
Volume declined
and breadth was mixed.
The VIX was up 1
½ %. Its chart remains positive (bad for
stocks): above both MA’s and within a short term uptrend.
The long bond rose
slightly. While it continues to build a
base very short term, it still finished below both moving averages and in a
short term downtrend; meaning that until some of these resistance levels are
successfully challenged, the assumption is that bond prices are going lower.
The dollar was down
fractionally but not enough to challenge even its very short term uptrend. In short, the chart remains technically
strong. I continue to believe that UUP
will move higher as long as the dollar funding problem persists.
GLD rose,
remaining above its 100 DMA. While it
seems to be attempting to build a base, the longer term chart is negative.
Bottom line: a little profit taking is
to be expected after a big up day.
However, there was still no follow through reaction to Wednesday’s price
action in volume, breadth, the VIX, the dollar, bonds and gold. They can, of course, respond later; and,
indeed, may be awaiting the outcome of this weekend’s Trump/Xi trade summit. But until I see that confirmation and/or the
Averages successfully challenging their 200 DMA, my short term technical outlook
remains unchanged: I don’t think a rally back to former highs is likely near
term.
Thursday
in the charts.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: weekly jobless claims rose, October pending home
sales fell while October personal income and spending were ahead of
estimates. However, the latter is a
primary indicator, so it clearly carries the most weight.
The
release yesterday of the minutes from the latest FOMC meeting was a bit anti-climactic
after Powell’s Wednesday speech. Somewhat
surprising to me was the minutes were very similar to the dovish Clarida/Powell
speeches earlier in the week. I say ‘surprising’
because between the time of the FOMC meeting (when the dovish minutes were
written) and Powell’s Wednesday dovish speech, Powell had made a very hawkish
speech---which was at least partly responsible for the softness in the stock
market.
In Thursday’s
Morning Call, I linked to an article suggesting that the first Powell speech
had been a ‘rookie’ mistake and the second one simply corrected that error. Whatever the reason, the bottom line is that
the pace of increase in the Fed Funds rate appears to be slowing. All that said, my opinion is that the
movement in the Fed Funds rate is less important than the velocity of the Fed’s
balance sheet run off---and we still have no clarity on that issue.
Is
the Fed’s change of direction too little, too late?
The
next big event is the Saturday Trump/Xi meeting. Everyone is playing up the possibility of a
favorable outcome. The operative word is
‘favorable’. Is a great photo op/ ‘we
are all great friends’ bulls**t/we will continue to work on a possible
agreement, a favorable outcome? If it
is, then we may get a favorable outcome.
If a NAFTA 2.0 solution is part of that, then the Market may think that
it is favorable. I won’t. If the Chinese agree to halt the theft and
forced transfer of intellectual property, then we got a favorable outcome. But unless I am reading the Chinese
completely wrong (which is a clear possibility), that is very unlikely to
happen.
Some
doubt any meaningful agreement.
Including Goldman.
***overnight,
the US, Canada and Mexico signed the NAFTA 2.0 agreement and the house suspended its vote on a new tax bill..
Bottom
line: when I was in the Army, in the times when the commanding officers couldn’t
figure out who was on first and had the rank and file hurrying up and waiting, we
had a saying: ‘the wind blew, the s**t flew and I couldn’t see for a minute or
two’. I feel that way now. The Fed says that it is full speed ahead on raising
interest rates and then it’s not. And no mention of balance sheet unwind. The Donald says that he going to correct the
egregious trade practices of the Chinese (who, in my opinion, aren’t about to
stop without serious pain being inflicted), then he says that he thinks a deal
can be done. I call bulls**t on
that.
I know that
investors are jiggy about an easier Fed (a lower Fed Funds rate doesn’t make interest
rates go down, more liquidity does---and the economy may be facing less
liquidity) and Trump and XI may go tip toeing through the tulips together (but
that doesn’t correct theft of US IP). I could
be wrong on both counts; and I will acknowledge it when it happens. If it happens.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
October
pending homes sales fell 2.6% versus forecasts of unchanged.
International
The
November Chinese composite PMI came in at 52.8 versus expectations of 53.1; the
manufacturing PMI was 50.0 versus 50.2; and the nonmanufacturing PMI was 53.4
versus 53.8.
November
Japanese CPI was reported at +0.8% versus estimates of +1.1%; industrial
production was up 2.9% versus consensus of up 1.2%.
October
EU unemployment was 8.1% versus projections of 8.0%.
October
German retail sales fell 0.3% versus forecasts of +0.4%.
Other
Update
on big four economic indicators.
What
I am reading today
Five places where people
slowdown the aging process.
Bad buybacks (another
must read from Barry Ritholtz).
What
can investors do about overconfidence?
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