Friday, November 2, 2018

The Morning Call---Good news or wishful thinking?


The Morning Call

11/2/18

The Market
         
    Technical

The Averages (DJIA 25300, S&P 2740) had another good day.   The Dow ended below its 100 DMA (now resistance) but above its 200 DMA (now resistance; if it remains there through the close next Tuesday, it will revert to support) and above the upper boundary of its very short term downtrend for a second day, voiding that trend.

The S&P finished below both moving averages but above the upper boundary of its very short term downtrend (if it remains there through the close today, it will void that trend) and above the lower boundary of its short term uptrend.

As positive as this all seems, technical saw is that the indices still need to close Wednesday’s gap open.  Unfortunately, there is no time horizon on when the fill will take place.  So prices can go higher before closing the gap; but still assume that S&P ~2681/Dow ~24892 are going to be revisited in the not too distant future.

Volume fell but remained elevated; breadth improved.

The VIX fell another 9 %, voiding its very short term uptrend but still ended above both MA’s and in that short term uptrend.

The long bond was down, voiding its very short term uptrend and finishing within a short term downtrend and below both moving averages and.   Still a negative technical picture.

The dollar was down ½ %, finishing back below its August high but within a short term and a very short term uptrend and above both moving averages.  I continue to believe that UUP will move higher as long as the dollar funding problem persists. 

GLD surged 1 ¼ %, closing back above its 100 DMA, negating Wednesday’s challenge and again showing some life.

 Bottom line: volatility continues across all asset classes with (1) stocks attempting to push out of their October funk; though Wednesday’s gap open hangs over any further advance, (2) bonds reversing their recent rally [suggesting higher interest rates], (3) the dollar remaining strong [suggesting higher interest rates], despite yesterday’s sell off and (4) gold doing its dead level best to confuse us all.

           
           
            A guide to stock market bounces.

            Thursday in the charts.

            Trend in global markets.

    Fundamental

       Headlines

            Yesterday’s economic numbers mostly disappointing: Q3 productivity and unit labor costs, the October manufacturing PMI and the October ISM manufacturing index were less than anticipated; on the other hand, weekly jobless claims fell slightly less than anticipated and while September construction spending was below estimates, the August revision was up huge.

            The main faintly economic related headline of the day was a tweet from the Donald saying that he had spoken to Xi, discussed trade issues and all was moving along fine.  (Yeah, right).

                        ***overnight, more.


                        Bottom line: the good news about poor economic reports is that it raises hopes that the Fed will back off its current tightening policy.  Given equity investors’ concern about higher interest rates, any suggestion of looser money is welcome.  On the other hand, bonds and the dollar are seriously disagreeing with the easy Fed scenario.  I wait for who wins.   

            If the US/China trade talks actually produce benefits, that would be great.  Just having economic conditions return to pre-tariff levels would be a short term plus.  An agreement that would curb Chinese theft of intellectual property would be big long term positive and make all the interim bumpiness worth the price.  However, if we get another NAFTA style re-do then the hope I had for a trade regime change will have been wasted.  And that all assumes that these latest moves aren’t just pre-election bulls**t. 

            In short, two of the major factors weighing on stock prices have received potentially positive headlines but no actual results.  I understand that the Market is anticipatory.  The question is, at what price point do investors say ‘show me the money’?
              
            Worries.

    News on Stocks in Our Portfolios
 
EOG Resources (NYSE:EOG): Q3 Non-GAAP EPS of $1.75 beats by $0.22; GAAP EPS of $2.05 beats by $0.57.
Revenue of $4.78B (+81.1% Y/Y) beats by $1.65B.

Apple (NASDAQ:AAPL): Q4 GAAP EPS of $2.91 beats by $0.13.
Revenue of $62.9B (+19.6% Y/Y) beats by $1.44B.

Illinois Tool Works (NYSE:ITW) declares $1.00/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            September construction spending was flat versus expectations of +0.2%; however, the August reading was revised up from +0.1% to +0.8%.

            The October Markit manufacturing PMI came in at 55.7 versus estimates of 55.9.

            The October ISM manufacturing index was reported at 57.7 versus forecasts of 59.1.

            The September trade deficit was $54.0 billion versus projections of $53.5 billion.

            October nonfarm payrolls rose 250,000 versus consensus of 190,000.

     International

            The October UK manufacturing PMI came in at 51.1 versus expectations of 53.0.

    Other

            Median household income continues to rise.

            John Bolton warns that the national debt is a security threat.

            Fed proposes loosen bank regulations---why not, it worked before.  Remember 2008/2009.

            US approves waivers on Iranian oil imports.

What I am reading today

           

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