The Morning Call
11/26/18
The
Market
Technical
Last
week, the S&P chart turned much more negative. The reverse head and shoulders pattern failed
to complete. But more important, the
S&P reset its short term trend from up to a trading range. That doesn’t mean that we are going into a
bear market; but it does mean that there is a lot of work to do before upside
momentum gets re-established. The next
support levels are the late October low (~2602) and the lower boundary of its
new short term trading range (~2536).
The only real positive in this chart is the gap open down last Tuesday
which needs to be filled before a confirmed downtrend is in place. Given the current oversold condition of the
Market that seems likely to occur.
While
the long bond still has a technically weak chart, it has performed well in the
last couple of weeks. With interest
rated rising in both the junk and investment grade corporate markets, I can
only assume that investors are seeking refuge in TLT as a safety trade.
Credit
spreads blowing out.
The
dollar remains quite strong helped along by tightening credit (dollar shortage)
and its role as safety trade. At the
moment, neither of these forces seem to be abating.
The
good news is that GLD seems to have found a base and managed to hold above its
100 DMA last week. The bad news is
everything else. It is likely that its
role as a safety trade accounted for the better performance last week; but ‘better’
is a relative term.
The
VIX continues to act in a subdued fashion.
Given the shellacking that equities took last week, it should have been up
more than occurred. That suggests that
no real fear/panic among investors which likely means either a rebound in
stocks or that we are not close to the lows.
Fundamental
Headlines
After a couple
of neutral weeks, the stats turned negative again last week as did the primary
indicators. Score: in the last 163
weeks, fifty-three were positive, seventy-three negative and thirty-seven
neutral.
Overseas,
German third quarter GDP fell 0.2% and the preliminary November EU composite
PMI came in at 52.4 versus expectations of 53.0.
Other
events with potential Market import:
(1)
the Italians and the EU remain at loggerheads over the
Italian budget deficit. As a reminder,
we saw how this played out with Greece. True,
the Italians have a bit more muscle but the outcome will likely be the same,
***overnight, Rome
appears to have blinked.
(2)
the UK and EU
have a tentative Brexit agreement but there is plenty of room to slip between
the cup and the lip,
(3)
Oil continues to take in the snoot. I repeat the lesson learned the last time
this happened---lower oil prices are not an unmitigated positive.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
October Chicago Fed national activity index was reported at .24 versus
consensus of .20; the September reading was revised down from .17 to .14.
International
Other
What
I am reading today
Proposed bail out of
private pension funds.
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