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.
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for Survival’s website (http://investingforsurvival.com/home)
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