The Morning Call
12/11/18
The
Market
Technical
The Averages
(DJIA 24423, S&P 2637) had another roller coaster day, swinging 500 Dow
points intraday before closing slightly up.
They both finished below both moving averages and have set a second lower
high and second lower low. The only good
news is that both tested their late October lows and bounced off a very oversold
condition. More upside would not be
surprising. However, the indices’ charts
continue to deteriorate.
Volume rose and
breadth was mixed.
The VIX was down
slightly, but its chart remains positive (bad for stocks).
The long bond rose
½ %, finishing above its 100 DMA (now support), above its 200 DMA for a fourth day,
reverting to 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. Clearly, investors continue to
shift their outlook for interest rates (lower).
Interview with BofA’s
head of global rates.
The dollar was up,
ending back above the lower boundary of its very short term up trend, voiding
Friday’s break. So the chart continues to be technically strong.
GLD slipped, but
remains above its 100 DMA and is developing a very short term uptrend.
Bottom line: yesterday’s dramatic
intraday reversal notwithstanding, the Averages’ charts continue to deteriorate
technically, making any meaningful Santa Claus rally ever more difficult. That said, they remain oversold, so more
upside short term wouldn’t surprise me.
The
pin action in the long bond continues to point to lower rates. While that may be good news with respect to
Fed policy, it also suggests bad news for the economy (i.e. weaker).
For
the bulls.
Monday
in the charts.
Fundamental
Headlines
No US economic
releases yesterday. But we did get some
overseas data which was mixed: November Chinese CPI and PPI were below
estimates; in addition, exports/imports weakened though the trade surplus with
the US grew; and third quarter Japanese GDP fell.
And
aside from the market itself, it was a quiet day save for the ongoing turmoil over
Brexit.
No
give at the EU.
Bottom
line: there remain some potentially impactful events in our near future: the
FOMC December meeting, the Trump/dem showdown on funding the government/the
wall and the Chinese response to the arrest of the CFO of a major Chinese tech
company.
I am not going
to speculate on the political dynamics or the outcome of the latter two; though
clearly we have to leave open the possibility of some not so positive outcomes.
Trump
threatening an end around of the wall.
Chinese are still acting
nicey, nice on trade.
This just in. Chinese detain former Canadian diplomat.
Whatever
the Fed does with interest rates, it is less important than the continuing
unwind of its balance sheet (less liquidity).
It will be joined shortly by the ECB (not selling securities, just not
buying them). This at a time of record
levels of debt, in particular, lower rated corporate debt. I continue to believe that this is the
beginning of the reversal of the misallocation/pricing of assets. It may start in the credit markets, but
stocks will likely not be far behind. I
am happy with my cash position.
Is the ECB now
more hawkish than the Fed?
50% downside?
Hedge
funds still have stocks to sell.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
November small business confidence index was reported at 104.8 versus
expectations of 107.0.
November
PPI was up 0.1% versus estimates of 0.0%; ex food and energy, it was up 0.3%
versus forecasts of +0.1%.
Month
to date retail chain stores sales grew slower than in the prior week.
International
October
UK industrial production was well below consensus; GDP was in line.
Other
The
R word.
Or
not.
Macron’s
surrender will blow out the French budget deficit. Cue the response from Italy.
What
I am reading today
More on cryptocurrencies.
Quote
of the day.
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