The Morning Call
12/18/18
The
Market
Technical
The Averages
(DJIA 23592, S&P 2545) had another rough day. They both finished below both moving averages,
are now in a pronounced very short term downtrend and traded well through their
October lows. They are nearing their
February lows which for the S&P is also the lower boundary of its short
term trading range.
Volume was up; breadth
was lousy.
The VIX was up 13
½ %, finally beginning to reflect the poor Market pin action. Its chart remains positive.
The long bond was
up ½ %, finishing above its 100 DMA (now support), above its 200 DMA (now support)
and above the upper boundary of its short term downtrend (if it remains there
through the close on Wednesday, it will reset to a trading range).
The dollar was off
¼ %, ending back below the rising lower boundary of its very short term up
trend. It remains above both MA’s and in
a short term uptrend. So the chart continues to be technically strong.
GLD rose ½ %, closing
above its 100 DMA and nearing its 200 DMA.
Bottom line: the Averages still act
poorly despite their oversold condition.
They took out their October lows and are nearing their February lows. Since the S&P’s February low is also the
lower boundary of its short term trading range, some extra bit of support
should exist there.
The key will
really be how the S&P reacts.
Support could be strong enough to generate some kind of bounce going
into year-end. Indeed, it could mark the end of the current
decline. Despite all pissing and moaning
occurring among investors, none of the major trends are down. And until something changes, the assumption
has to be that the current downtrend is just a correction in long term bull market.
That said, as I noted,
the S&P is close to challenging its short term trading range. If it does and is successful, then the next
major support level is ~1800.
The
long bond finished above the upper boundary of its short term downtrend (if it
remains there through the close on Wednesday, it will reset to a trading range)---something
that it has done unsuccessfully twice before this year. However, if does break that downtrend, it
could be marking the end of 2016-2018 rise in rates.
The
dollar’s chart remains quite strong and will likely continue to do so as long
as dollar funding (liquidity) problems grow.
Gold is benefitting from the rising level of uncertainty.
Monday
in the charts
Fundamental
Headlines
Yesterday’s
economic data was disappointing: the December NY Fed manufacturing index was
one-half of expectations while the October housing index was well below
estimates.
There
weren’t any major headlines, though there was some good commentary on several
of the issues weighing on the Market.
(1)
trade:
Congress should retake its role in
trade.
Is the Chinese purchases of soybeans
really a concession?
***overnight,
major speech by Xi---nothing about trade reforms.
(2)
the Fed: which
meets this week along with the Bank of England and the Bank of Japan
Fed
entering brave new policy world.
Is Powell trapped?
(3)
government shutdown:
White House moves to shut
down government.
Bottom
line: of course, there are other issues in play that can influence the economy
as well as investor sentiment: Brexit, Italy, oil, impeachment. But this week’s major headlines will be made
by the central banks, in particular the Fed.
You know what I think that it should do: it needs to continue to unwind
QE which won’t have that big an impact on the economy but will affect the
pricing and allocation of assets.
That said, reams
of paper and hours of opining have gone into what the Fed will do and how the
Market will react to whatever it does. I don’t have a clue on either. Plus, given the current skittish mood in the
Markets, I am not sure how Markets will react to whatever it does. This is a great time to sit on your hands.
The
latest from Jeff Gundlach.
News on Stocks in Our Portfolios
FactSet Research Systems (NYSE:FDS):
Q1 Non-GAAP EPS of $2.35 beats by $0.06;
GAAP EPS of $2.17 beats by $0.05.
Revenue of $351.64M (+6.8%
Y/Y) beats by $1.6M.
Boeing (NYSE:BA) declares $2.06/share quarterly dividend, 20.2% increase from prior dividend of
$1.71.
Revenue of $9.56B (-0.3%
Y/Y) beats by $40M.
Economics
This Week’s Data
US
The
December housing index was reported at 56 versus estimates of 61.
November housing
starts rose 3.2% versus forecasts of down 0.5%; building permits were up 4.9%
versus consensus of -0.6%.
International
December
German business sentiment came in at 101.0 versus expectations of 101.9.
Other
86%
of government spending requires no congressional approval.
Europe’s
retail apocalypse.
Student
loans hit high.
Banks are lending
less.
What
I am reading today
You have a trading
problem.
Prediction versus
preparation.
Stay
diversified.
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for Survival’s website (http://investingforsurvival.com/home)
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