The Morning Call
1/24/19
The
Market
Technical
The Averages
(DJIA 24575, S&P 2638) improved yesterday, bouncing off their close brush
with the 61.8% Fibonacci retracement level.
This indicates that this resistance level has been taken out and raises
the odds that December 24 was a bottom and more upside is to be expected. That said, both Averages remain below both
MA’s and are in short term trading ranges.
In addition, the
S&P fell below the lower boundary of its very short term uptrend for a
second day, voiding that trend. However,
as I said yesterday that trend’s angle of ascent was so steep, it was bound to
be negated at some point soon.
Volume declined;
breadth was poor---a little usual for an up day in the indices.
The VIX fell 6
%, but ended above both MA’s and in a short term uptrend.
The long bond
declined a nickel, but finished above both MA’s, in short and intermediate-term
trading ranges, in a very short-term uptrend and above its last prior higher
low.
The dollar was
down ¼ %, still closing above both MA’s, in a short-term uptrend and within
that mid-November to present consolidation phase.
GLD declined
fractionally, but ended well above both MA’s, within a very short-term uptrend
and within a short-term trading range---a healthy chart.
Bottom line: the Averages successfully
challenged their break of the 61.8% Fibonacci retracement level, which suggests
that the December 24 low was a bottom.
As I noted before, that doesn’t mean that stocks won’t fall from current
levels. It just raises the probability
that the worst is over. It is somewhat
bothersome that breadth was poor, the VIX still has a positive chart (an
indicator of potential negative equity pin action) and the dollar, long bond
and gold are performing like safety trades.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: weekly mortgage and purchase applications were down,
month to date retail chain store sales improved slightly and the January
Richmond Fed manufacturing index fell into minus territory, just not as much as
expected.
Overseas, the
dataflow continues negative: the Bank of Japan lowered its estimate of the
Japanese economy’s growth in 2018 but raised it for 2019 and 2020. However, it also lowered its inflation
outlook which is something of a wash.
The January EU consumer confidence came in below forecasts.
***overnight,
the ECB left rates unchanged and said that it will continue to reinvest
maturing securities in its portfolio.
The rest of the
news was just a lot jawing about the government shutdown, Trump’s state of the
nation speech and the US/China trade dispute.
Government
shutdown enters uncharted waters.
Increasing
risk of a major China trade debacle.
***overnight,
Reuters reports that the US and China will hold high level trade talks next
week.
Bottom
line: at the moment, it seems investors are not that concerned about a slowing
global economy and its implication for corporate earnings, an unpleasant
outcome to the US/China trade negotiations or the willingness of the ruling
class to suck up to the Markets. To be
sure, stocks are still 10% off their all-time highs. But if the best investors can do is 10%
upside from these levels, they need to be a lot more concerned about taking
profits than putting money to work.
I
recognize that my fundamental assessment of Market is somewhat at odds with the
technical read. There are a lot reasons
why that could happen; and I am not going to go into them at this. I will if the indices get to an extreme. Just so you know.
The
latest from Guggenheim Investments.
The latest from
Doug Kass.
News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW): Q4 Non-GAAP EPS
of $3.96 beats
by $0.36; GAAP EPS of $3.68 beats by $0.15.
Revenue
of $2.76B (+4.9% Y/Y) misses by $50M.
Economics
This Week’s Data
US
Month to date
retail chain store sales grew slightly faster than in the prior week.
The January
Richmond Fed manufacturing index was reported at -2 versus forecasts of -3.
Weekly mortgage
applications fell 2.7% while purchase applications were down 2.0%.
Weekly
jobless claims fell 13,000 versus expectations of 5,000 increase.
International
January
EU consumer confidence came in at -7.9 versus estimates of -6.5
The
January Japanese flash manufacturing PMI was reported at 50.5 versus the
December reading of 51.4.
The
January EU flash composite PMI was 50.7 versus consensus of 51.4; the manufacturing
PMI was 50.5 versus 51.4 and the services PMI was 50.8 versus 51.7.
Other
Chemical
activity barometer slows in January.
Architectural billing
slide.
Warning
signs in US shale production.
To
whom does the government owe money?
This
is a great piece on modern monetary theory.
In my opinion,
there are two flaws. The first is in the
first sentence of essay: ‘Modern
Monetary Theory is defined as the proposition that the federal government can
borrow as much money as it needs so long as the interest rate it pays is less
than the growth rate of the GDP.’ Unfortunately, there are far too many
times when the interest on government debt is higher than the growth rate of
GDP but the government still borrows.
·
The
second is in this statement found later in the article: ‘Federal spending, therefore, does not require
the government to claim a portion of the profits of private commerce; and
increasing federal spending, therefore, does not require increasing that
claim—either through taxing or “borrowing.”’
Roll that around in your head for a minute. This saying that theoretically the government
never has to tax incomes or profits.
Indeed, it can do away with all taxes; and just issue Treasury
notes. The problem as the author points
out is that the Fed has to create the dollars that investors use to buy the
Treasuries. So what if it
doesn’t---think Paul Volcker.
What
I am reading today
Who is the prototypical
rich person?
Watch
an asteroid hit the moon.
-7.9.
Seth
Klarman pisses in the Davos punch bowl.
Astronomers
witness the birth of a black hole.
Stockman:
NATO is obsolete.
Quote
of the day.
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