The Morning Call
11/28/18
The
Market
Technical
The Averages
(DJIA 24748, S&P 2682) were down in early trading but rallied into the
close. But their charts are still broken
on a short term basis. Both are below
their respective 100 and 200 DMA’s and both are now in a short term trading
range. In addition, intraday, the S&P closed last Tuesday’s gap open
down---which removes that as a technical factor pulling prices higher. The Dow has yet to fill its corresponding gap
(~24840).
On a more positive
note (1) both indices remain solidly in intermediate and long term uptrends and
(2) we are in a historically strong seasonal period for stock prices. However, I believe that the odds of them challenging
their all-time highs or the upper boundaries of their long term uptrend anytime
soon is declining.
Volume rose and
breadth improved.
The VIX was up ½
%, once again trading atypically (inverse) with the Market pin action. The chart remains positive (bad for stocks):
above both MA’s and within a short term uptrend.
The long bond rose,
continuing to build a base very short term.
However, 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.
https://www.zerohedge.com/news/2018-11-27/leverage-loan-market-hits-brick-wall-four-deals-get-pulled
The dollar was up
¼ % on above average volume, remaining technically strong. I continue to believe that UUP will move
higher as long as the dollar funding problem persists.
GLD was down
another ½% on good volume, ending near its 100 DMA. While it seems to be attempting to build a
base, the longer term chart is negative.
Bottom line: the Averages continued their
rally on what was an uneven news day---which is a plus. If that is a sign that investors are less
fearful, then I think that seasonal and calendar factors could provide some additional
lift near term. That said, a good deal
of technical harm has been done; and history suggests that it will take some
serious work for the indices to repair that damage. In short, I don’t think a rally back to
former highs is likely near term.
UUP
is benefitting from its role as a safety trade as well as the prospects for higher
rates. TLT investors seem torn between
fears of rising rates and fear in general (safety trade). GLD is trying to build a base, but not very
hard.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were tertiary indicators and were mixed: month to date retail sales grew
faster than in the prior week (but that is to be expected, given the season), the
September Case Shiller home price index was in line and November consumer confidence
was below estimates.
The optimistic
take on the economy.
Morgan Stanley is not all
that impressed either.
As
I noted yesterday, the two big economic issues that will be front and center
this week are:
(1)
Fed policy. In
his speech yesterday, vice chair Clarida suggested that Fed policy may be closer
to neutral than originally thought. I
thought that a bit dovish though many on the Street disagree. Let’s see what Powell says today.
On the other hand, Trump again ripped the Fed/Powell
for its current tightening policy. In
general, I am not a fan of the president criticizing an independent agency as vociferously
as he has done. If anything, it could
influence that agency’s decision making process to lean against the criticism
just to establish its independence---which gets in the way of good policy
decision. That said, I have no problem with
the Fed’s quantitative tightening. So if
Trump’s comments strengthens the Fed’s commitment to continue QT, all the
better.
The optimistic take on Fed policy.
(2)
trade. The
Donald lobbed more tariff threats at China yesterday. To be sure, this is just part of his
saturation bombing approach to upcoming negotiations; but I can’t help thinking
that it will not work as well with the Chinese as others, given their psychic
attachment to ‘saving face’. If I am
right, that suggests little progress unless Trump settles for a NAFTA 2.0 type
agreement, which, in my opinion, would be worse than no agreement at all.
The
optimistic take on the US/China trade conflict.
On
the other hand: the latest out of the
administration.
Overseas:
Update
on the Italy/EU standoff.
Update
on Brexit.
Bottom
line: Whatever occurs, the facts remain
that (1) the Fed has wrecked the price discovery function of the Markets---that
either gets corrected or the economy continues to allocate capital inefficiently---and
(2) the Chinese will continue to steal our intellectual property until we put a
stop to it. Correcting these ills will
be painful. More than it would have been
if our ruling class had acted properly.
Less than it will be if nothing is done.
I would use any
further advance in stock prices to build a cash position---if I hadn’t already
done so.
When
cash outperforms everything else.
News on Stocks in Our Portfolios
United
Technologies (UTX) to split into three companies.
Revenue of $1.01B (+3.5%
Y/Y) misses by $40M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
November
consumer confidence was reported at 135.7 versus expectations of 136.5.
The
September Case Shiller home price index rose 0.3%, in line.
Weekly mortgage
applications were up 5.5% while purchase applications advanced 9.0%.
The
second estimate of Q3 GDP was +3.5%, in line with the first estimate; corporate
profits were up 5.9% versus the prior reading of +6.4%.
The
October trade deficit was $77.2 billion versus consensus of $76.9 billion;
exports decline 0.6%.
International
Other
Silent
inflation.
Current
expected 2018 earnings growth
GOP
announces new cut tax package. No hint
of how much it will cost.
Mortgage
delinquency rate declined in October.
Oil
prices continue to leak lower.
What
I am reading today
How to avoid stupid
mistakes when the Market declines.
How to retire at
65.
Growing meat without
animals.
National Geographic’s best
photos of 2018.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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