The Morning Call
11/8/18
The
Market
Technical
The Averages
(DJIA 26180, S&P 2813) did a Titan III shot yesterday, pointing to a
potential dramatic change in the technical picture. The Dow ended above its 100 DMA for a second
day (now resistance; if it remains there through the close today, it will
revert to support) and above its 200 DMA (now support).
The S&P
finished above its 100 DMA (now resistance; if it remains there through the
close on Friday, it will revert to support) and its 200 DMA (now resistance; if
it remains there through the close next Monday, it will revert to support).
While clearly a
potential plus, yesterday witnessed a second gap open to the upside. Again, tech wisdom is that the gap has to be
closed before a longer term trend can continue in the direction of that gap
open. At some point, the pull of those
two gaps will exert itself.
Volume was up but
didn’t match the levels of October; breadth improved.
The VIX declined
17 ¾ %, re-establishing the (inverse) sync with stocks. Despite the magnitude of the plunge, it remained
above both MA’s and within a short term uptrend.
The long bond
was up slightly but is still within very short term and short term downtrends and
below both moving averages. Still a
negative technical picture, indicating higher interest rates.
The dollar fell
fractionally, closing below its August high but still within short term and very
short term uptrends and above both moving averages. I continue to believe that UUP will move
higher as long as the dollar funding problem persists.
GLD was down one
cent, finishing above its 100 DMA. While
the pin action remains a bit confusing, it does seem to be trying to establish
a trading range slightly above the former August to October trading range.
Bottom line: the S&P has begun a
challenge of its 200 DMA, which if successful would point to higher
prices---the likely next stop being the September/October highs. That seems a reasonable scenario given the
seasonal and post mid-term calendar effects.
However, confusing the technical picture are two gap opens at lower
levels that, technically speaking, have to be closed. I await for the confirmation of the break of
the 200 DMA.
While I disagree
with this analyst’s take on the fundamentals, he provides the technical bull
case based on the calendar.
TLT’s and UUP’s
performances both continue to point to higher interest rates (a tighter Fed)
which is definitely not a plus for the Markets.
Peak
buy backs?
Wednesday
in the charts.
Fundamental
Headlines
Only
one minor datapoint released yesterday: weekly mortgage and purchase
applications were down. Overseas, September
German industrial production was very positive.
US
GDP growth expected to continue to slow in the fourth quarter.
Of
course, investors spent the day trying to digest the outcome of the
elections. I have provided a number of
links from bulls, bears, liberals and conservatives to try to provide a
balanced view.
More
post-election analysis.
And.
And.
And.
And
last but not least from Doug Kass.
Today,
we get to deal with this week’s second major development---the FOMC meeting and
its ensuing policy statement. Expectations
are for nothing new.
Bottom
line: it is always a plus for the Market when uncertainty if eliminated. The elections removed a source of doubt. Not just that but we now have gridlock in DC
which, for me, has always been the ideal political construct. So I expected positive pin action. However, I was surprised by the magnitude of
the up move; especially since the results were generally in line with
expectations.
However,
all the negatives that impact growth and valuation have not been changed by the
election results unless you assume that the current irresponsible fiscal policy
is somehow going be improved. On that
score, it seems to me that the best scenario is that the deficit is not made
any worse by even more irresponsible fiscal policy. However, it won’t alleviate the problem of servicing
too much debt restraining economic growth.
That leaves (1) a
tightening Fed which no one in Washington is going to stop except the Fed
itself and (2) trade negotiations, in particular, with China whose leaders were
almost surely watching the returns Tuesday night just as closely as the rest of
us and who likely were given reason to play harder ball as a result of the
outcome.
I
continue to believe that the economy will grow but at a diminishing pace over
the next couple of quarters. I continue
to believe that the reform of the post WWII political/trade regime will be a
plus assuming that it is not in the model of NAFTA 2.0. And I continue to believe that the unwinding
of QE is a major positive for the economy.
Unfortunately, it will likely not so good for all those assets that
advanced on excess liquidity.
Investing
late in the market cycle.
News on Stocks in Our Portfolios
Qualcomm (NASDAQ:QCOM):
Q4 Non-GAAP EPS of $0.90 beats by $0.07; GAAP EPS of -$0.35 misses
by $0.98.
Revenue of $5.83B (-2.2%
Y/Y) beats by $300M.
Economics
This Week’s Data
US
Weekly
jobless claims fell by 1,000, in line.
International
Other
Some data on the
impact of the tariff war with China.
Clock is ticking
on China’s oil independence.
Inflation in developed and emerging economies.
The long term
trend in light vehicle sales.
Third quarter EU
GDP.
Jeffery Snider
on the EU economy (must read):
More financial
problems for Iran.
Latest in the
Italy/EU standoff.
What
I am reading today
The three legged stool of
retirement savings.
Causality
of stock price movement.
Quote
of the day.
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for Survival’s website (http://investingforsurvival.com/home)
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