The Morning Call
12/12/18
The
Market
Technical
Try as they
might, the Averages (DJIA 24370, S&P 2636) just couldn’t manage a follow
through to Monday’s modest advance in spite of their oversold condition. The pin action was again quite volatile. They both finished below both moving averages
and have set a second lower high and second lower low. I still believe that some kind of oversold
rally is likely. But the more time that
elapses and the uglier their charts get, the lower the odds of any kind of
meaningful advance.
Volume was down
and breadth was poor. The VIX was down
slightly---not usual for a down day in equity prices---but its chart remains
positive (bad for stocks).
The long bond
fell, finishing above its 100 DMA (now support), above its 200 DMA (now support)
but traded back to the upper boundary of its short term downtrend, negating
Monday’s break. It needs to take out
this downtrend to convince me that investors are truly shifting their outlook
for interest rates (lower).
Fed
considering using another benchmark than Fed Funds rate.
Goldman forecast
for 2019 rate hikes.
The dollar was
up ¼ %, ending above the lower boundary of its very short term up trend and
above both MA’s and in a short term uptrend. So the chart continues to be
technically strong.
GLD dropped fractionally,
but remains above its 100 DMA and is developing a very short term uptrend.
Bottom line: my main take away from yesterday’s
pin action was that stocks couldn’t stage a second up day in a row, despite
being very oversold and starting the day 300+ Dow points to the upside. That suggests a complete lack of conviction
among buyers and the likelihood of more downside. Levels to watch are the October lows (25062/2601)
and the February lows (23352/2536).
The
long bond has run into some resistance at the upper boundary of its short term
downtrend. That is not particularly
surprising; but it does need to successfully challenge this level before the
current move up is more than just a rally in a bear market.
Fundamental
Headlines
Yesterday’s
data was discouraging: the November small business confidence index and month
to date retail chain store sales were below estimates. Confusing matters, the November PPI came in a
bit hotter than expected. Stats like
this help keep alive the debate within the Fed about whether it needs to
continue to act to contain inflation or to let up because the economy is
weakening.
Overseas,
October UK industrial production was well below consensus; October GDP was in
line.
Two
headlines yesterday:
While
there was a heated exchange between Trump, Pelosi and Schumer on government
funding/the wall in which Trump doubled down on shutting the government
down. As you know if I had my way, they
would close DC permanently. But that
won’t happen; and generally, the shutdown strategy has not been a winner
Market-wise.
Trump also upped
the ante in the US/China standoff threatening arrests of Chinese hackers.
Opposing
strategies in the US/China trade war.
***overnight, Trump
tweeted that (1) he would be willing to
release the high tech CFO in exchange for more Chinese trade concessions and
(2) the Chinese were lowering auto tariffs [already rumored] and increasing dramatically
their purchases of soybeans. I await
confirmation.
***also overnight,PM May
will face a ‘no confidence vote today.
Bottom
line: the dataflow is not exactly helping a ‘data dependent’ Fed plot
policy. But as you know, I think what it
does with interest rates is much less important than what it does with its
balance sheet---which continues to run off (decreasing liquidity, price
pressure on misallocated assets). And as
have noted before, the ECB is not far behind.
More
on the end of ECB QE.
I
don’t like piling on the bad news when there is already enough to go around;
and I try to avoid discussing political issues, especially at this moment in
time when the ruling class, media and country are so divided. But there is a growing consensus among the
guys I talk to (not the media) that the coming report from the Mueller
investigation may contain offenses that could be interpreted as impeachable.
I clearly have
no insight as to what Mueller may conclude.
But, as I said, given the general attitude of the media and a good
portion of the political class, any excuse would be enough to bring the ‘I’
word into play. I lived through the
Nixon impeachment; and I can promise that it was not a fun time in
Marketville. To be sure, the economic
conditions were quite negative then. But
the political drama had an impact on the level of sentiment in the country.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
November CPI was
flat, in line; ex food and energy, it rose 0.2%, also in line.
Weekly mortgage
applications were up 1.6%, purchase applications 3.0%
International
October
EU industrial production advance 0.2% versus forecasts of +0.3%; the September reading
was revised from-0.3% to -0.6%.
Other
Budget
deficit continues to rise in first two months of this fiscal year.
Economic
risks in 2019.
EU
scores. Italy appears to have buckled.
What
I am reading today
This can’t be
good---Russia sends two nuclear capable bombers to Venezuela.
Follow up.
Researchers found a way
that marriages stay happier over time.
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