The Morning Call
11/6/18
The
Market
Technical
The Averages
(DJIA 25461, S&P 2738) rallied yesterday.
However, the technical picture for both index didn’t change. The Dow ended below its 100 DMA (now
resistance) but above its 200 DMA for a third day (now resistance; if it remains
there through the close today, it will revert to support).
The S&P
finished below both moving averages and above the lower boundary of its short
term uptrend.
Volume fell; breadth
was mixed.
The VIX rose 2 ½
%, again trading somewhat at odds with the Averages. It finished above both MA’s and in a short
term uptrend.
The long bond
was up slightly, but remains within very short term and short term downtrends and
below both moving averages. Still a
negative technical picture, indicating higher interest rates.
The dollar was down
fractionally, but still closed above its August high, 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 was down ¼ %,
but remained 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: I am continuing to focus
on the S&P which is trading between its 200 DMA (which has been a
significant level for the past two years) on the upside and the lower boundary of
its short term uptrend (which it challenged unsuccessfully last week) on the
downside. Whichever of those boundaries
gets successfully challenged should tell us a lot about future price direction. Keep in
mind that (1) we are now in a seasonal period of strong Market performance but
(2) last Wednesday’s gap open to the upside needs to be filled.
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.
Monday
in the charts.
Fundamental
Headlines
Monday’s
US stats were upbeat: both the October Markit services PMI and the October ISM
nonmanufacturing index were ahead of estimates.
Overseas, there was more of a mixed picture: the October Chinese
services PMI and the Caixin composite PMI were below expectations, while the
October Japanese services and composite PMI’s were above forecasts.
This
week will be a very slow one for economic data.
However, there will be no shortage of potential Market moving
events. The numero uno will be election
results. Given the lack of accuracy of
the 2016 election predictions, any attempt to anticipate the outcome is likely
a lost cause. However, I did find some
analysis of the historical Market performance under various scenarios.
Understanding the Market
and Trump (bear in mind that the author is anti-Trump)
Number two is the FOMC
meeting. No one expects any change in
policy; but everyone is anticipating the policy statement, i.e. will it be more
dovish or hawkish than prior statements?
Expectations are for nothing new/different here either; but its analysis
of recent economic data could potentially be Market moving. Making this particular meeting/statement
somewhat different from prior occasions is that equity investors appear hopeful
that the Fed will err on the side of ease while bond and dollar investors are
making pretty clear that they believe that rates are going up. In short, we need to be aware of how all
Markets react to the news, not just stocks.
More.
Bottom
line: in the background is the China trade/tariffs issue which I think its
weighing heavily of investor psychology.
The problem, at the moment, is that it is impossible to know how much truth
there is in the news flow. To be sure, if
the US/China trade talks actually produce benefits, which would be great. Just having economic conditions return to
pre-tariff levels would be a short term plus.
However, any agreement would have to include curbs on Chinese theft of
intellectual property to make it a big long term secular positive. If we get another NAFTA 2.0 re-do then all
the pain that the Market has endured will be for naught and would have little
impact on my long term secular growth outlook or Market valuation.
News on Stocks in Our Portfolios
Revenue of $4.9B (+10.4%
Y/Y) in-line.
Revenue of $4.4B (+38.8%
Y/Y) beats by $40M.
Economics
This Week’s Data
US
The October Markit services PMI
came in at 54.8 versus estimates of 54.7.
The October ISM
nonmanufacturing index was reported at 60.3 versus expectations of 59.1.
International
September
German factory orders rose 0.3% versus forecasts of down 0.5%.
Other
Lumber
prices falling.
The latest
earnings and sales forward guidance data.
John
Mauldin on the growing debt problem (must read):
Update
on the Italy/EU standoff.
Update
on the Japanese QE.
What
I am reading today
Four factors in deciding
your stock/bond mix in retirement.
The marvels of
compounding.
Money
alone doesn’t buy happiness.
The
status quo bias in investing.
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for Survival’s website (http://investingforsurvival.com/home)
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