The Morning Call
11/14/18
The
Market
Technical
The Averages
(DJIA 25286, S&P 2722) continued their Monday decline. The Dow ended back below its 100 DMA for a second
day (if it remains there through the close today, it will revert to resistance)
but above its 200 DMA (now support).
The S&P
finished below its 100 DMA for (now resistance), below its 200 DMA, (now resistance)
and is closing in on the lower boundary of its short term uptrend (~2700).
My (technical)
operating thesis right now is that the Averages have to close their initial gap
opens in order to advance on their all-time highs and the upper boundaries of
their long term uptrends. If correct, then
more downside is coming in order to close the initial gap opens before the
seasonal and calendar effects kick in.
Volume fell
slightly; breadth was poor.
The VIX was down
2%, returning to its recent pattern of performing contrary to its normal
inverse relationship with equity prices.
However, it remains technically strong: above both MA’s and within a
short term uptrend.
The long bond
was down but not enough to re-establish the recently voided very short term
downtrend. However, it finished below
both moving averages and in a short term downtrend.
The dollar was also
down, but remains technically strong. I remain
of the opinion that UUP will move higher as long as the dollar funding problem
persists.
GLD was up
fractionally, ending below its 100 DMA for a second day (now support; if it
remains there through the close today, it will revert to resistance).
Bottom line: the bad news is that the
S&P was unable to successfully challenge its 200 DMA; given its recent
power as support, it is significant that it is now acting as resistance. Plus, it still needs to close its late October
gap open. The good news is that both of
the Averages closed the most recent gap open and the positive seasonal and calendar
factors aren’t going away.
The positive scenario is that the indices
fall further and close the initial gap open, then go on to challenge higher
resistance levels. The negative scenario is that the seasonal and calendar
factors can’t offset the negatives being posed by an irresponsible fiscal policy,
a tightening Fed and overly generous stock valuations.
TLT
and UUP continue to act like interest rates are going higher; gold continues to
act like s**t.
Tuesday
in the charts.
Fundamental
Headlines
There
were two minor economic data releases yesterday: the October small business
optimism index was slightly below estimates while month to date retail sales
were flat with the prior week.
No
major headlines in the US but there are still developments that could potentially
have an impact on the economy and the Markets.
The
positives:
(1)
there may be a Brexit deal.
(2)
recession not likely in next 12 months.
(3)
mortgage delinquencies the lowest in 12 years.
The
negatives:
(1)
Italy defies EU mandate.
(2)
oil continues to fall.
OPEC sees demand
for crude declining.
On the other
hand, the pin action may be the result of a hedge fund unwinding a losing
position.
***overnight, OPEC is considering
a production cut.
Finally, just
a reminder of the macroeconomic consequences the last time oil prices
plunged---‘an unmitigated positive’ NOT
(3)
Chinese credit growth slows significantly.
(4)
Moody’s expect credit conditions to weaken in 2019.
(5)
The math of the federal debt.
Total US debt to GDP.
Bottom
line: while the economic news is not all
bad, there is enough of it that, with the fading of the ‘everything is awesome’/’buy
the dip’ mentality, it appears to be weighing on investor psychology. There can always be a year-end rally based on
seasonal/calendar effects. However, US equities
are already generously valued both on an absolute and relative basis. Sooner or later, the bad news contained in
the above links is either going to start impacting valuations or it is going to
change. I don’t want to be fully
invested betting that the latter will occur; so I want to own some cash in
order to buy stocks cheaper if the former happens. I would use any strength in the Market to
build a cash position, if I hadn’t already done so.
News
on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grew at the same pace as the prior week.
Weekly mortgage
applications were down 3.2% while purchase applications were off 2.3%.
October CPI rose
0.3%, in line; ex food and energy, it was up 0.2%, also in line.
International
Q3
EU flash GDP was up 0.2%; in line; German flash GDP was down 0.2% versus
estimates of down 0.1%; October EU industrial production was -0.3% versus
expectations of -0.4%.
Q3
Japanese GDP was down 0.3% versus consensus of up 0.8%.
October
Chinese fixed asset investment came in up 5.7% versus forecasts of up 5.5%;
industrial production was up .48%, in line; retail sales were up 8.6% versus
projections of up 9.1%
Other
The
Fed chart book.
A
protectionist is….
Wall Street is additive
to the investment process.
What
I am reading today
Five ways to boost your
social security benefit.
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