Wednesday, December 19, 2018

The Morning Call--Today is all about the Fed


The Morning Call

12/19/18
The Market
         
    Technical

The Averages (DJIA 23675, S&P 2546) staged something of a dud of a rally, starting off strong, then fading during the day.  They both finished below both moving averages and are now in a pronounced very short term downtrend.   The Dow is near its February low, while the S&P has touched its February low (which is also the lower boundary of its short term trading range) both Monday and Tuesday and bounced both times.

Volume was flat; breadth was mixed. 

The VIX was up 4 ¾ %, once again trading contrary to its normal pattern, suggesting that there is still a lot of investor nervousness.  Its chart remains positive.

The long bond was up another ½ %, finishing above its 100 DMA (now support), above its 200 DMA (now support) and above the upper boundary of its short term downtrend for a second day (if it remains there through the close today, it will reset to a trading range). 

The dollar was off one cent, ending below the rising lower boundary of its very short term up trend; if it closes there today, it will void that trend.  It remains above both MA’s and in a short term uptrend. So the chart continues to be technically strong.

GLD rose another ¼ %, closing above its 100 DMA, nearing its 200 DMA and slowly building an improving chart. 

 Bottom line: yesterday’s pin action held both good and bad news.  The good news is that the S&P challenged the lower boundary of its short term trading range for a second day in a row and bounce both times.  The bad news is that in what could have been a strong oversold rally, it fizzled.  The VIX trading higher on an up Market day was also concerning. 

The key will really be how the S&P trades around the lower boundary of its short term trading range.  Support could be potentially be strong enough to generate some kind of bounce going into year-end and could mark the end of the current decline, though yesterday’s price performance was not a good omen.   Still from a longer term perspective, 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. 

            The long bond finished above the upper boundary of its short term downtrend and could reset to a trading range today.  If that occurs, 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.
           
            Defining if a bear market has started.

Oil continues to crash.

            Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic stats were upbeat: month to date retail chain store sales and November housing starts were better than expected. 

Overseas, December German business sentiment was lower than anticipated.

            Of course, all eyes are on the Fed meeting and statement today with expectations generally centered on a dovish Fed Funds rate increase (rates up but further raises ‘data dependent’) or a pause in hiking.  But there are so many machinations of what the Fed may do and how the Markets will react to any move, I honestly have no idea how this day will end.     

            Good luck to the Fed.

            Suddenly, the unwinding of the Fed’s balance has people concerned.
                   
            ***overnight, Russian central bank raises rates.

            Other headlines that have economic/Market implications:

            Mnuchin gave another one of those ‘everything is awesome’ China trade interviews that I believe are primarily designed to goose the Market.  But like the boy who cried ‘wolf’, they have apparently lost their import.

            Trump blinks on government shutdown.

            Bottom line: the bad news is that Trump’s bark was once again shown to be far worse than his bite (government shutdown).  The even worse news is that everyone has now pretty much figured that out, leaving him somewhat toothless and with diminishing credibility (China trade). 

            On the other hand, I am clueless right now on any potential change in the direction and/or velocity of Fed policy.  The key, of course, is what it may do with the unwinding of its balance sheet.  As long as that goes forward, then I think that problems will continue to arise in the pricing of assets.

            Why things feel terrible.

            The latest from Stanley Druckenmiller.

            This is a great article and it is expressing my current thinking, i.e. even though the Averages may not be anywhere close to Fair Value, there are plenty of stocks out there that have and are down 30-50%.  As you may remember, our Portfolios bought some beaten up stocks earlier this year (RL, WSM, GIS, GILD) when it appeared that they had been unfairly trashed in an otherwise strong Market.  It is now happening again.   But this time the Market looks to be rolling over, so I have refrained from any activity, waiting to see how serious a general price decline becomes.            https://blog.evergreengavekal.com/special-edition-eva-the-stealth-bear-market/

            ***overnight, Italy and EU reach a budget deal.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew faster than in the prior week.

            Weekly mortgage applications fell 5.8% while purchase applications were down 7.0%.

            The Q3 US trade deficit was $124.8 billion versus estimates of $125.0 billion.

     International
              
             The November Japanese trade deficit was Y737 billion versus forecasts of Y644.5 billion.

    Other

Update on Brexit.

***overnight, May government braces for ‘no deal’ Brexit.

RV sales and recession.

            Citi facing $180 million dollar loss in its prime brokerage business.

What I am reading today

            Why 536 was the worst year to be alive.

            The hypersonic missile race.


Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




No comments:

Post a Comment