Friday, January 18, 2019

The Morning Call--The Averages are testing major resistance


The Morning Call

1/18/19

The Market
         
    Technical

The Averages (DJIA 24370, S&P 2635) had another good day. However, both indices finished below both moving averages (the S&P 100 DMA has crossed below its 200 DMA’s---an historically negative technical signal).   The Dow finished in a very short-term downtrend and a short-term trading range.

On the other hand, the S&P closed 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).  It is also in a very short-term uptrend.

Just as important as the S&P challenge of its short term downtrend, both indices finished above the 61.8% Fibonacci level (24350, 2631)---which as I previously noted every trader in the galaxy is watching this critical resistance level. A successful challenge of this level would indicate that the December low was the bottom and more upside is to be expected---the Averages just need to remain there through the close on Monday.

Volume fell, which is not particularly reassuring; though breadth did improve.

The VIX was down 5%, ending back below its 100 DMA for the third time in a week (now support; if it remains there through the close on Monday, it will revert to resistance).  It finished above its 200 DMA and in a short-term uptrend.

The long bond rose fractionally, finishing above both MA’s, in short and intermediate-term trading ranges, in a very short-term uptrend and above its prior higher low.

The dollar was unchanged, closing above both MA’s, in a short-term uptrend and has regained the lower boundary of that mid-November to present consolidation phase. 

GLD declined slightly, but still closed above both MA’s, within a very short-term uptrend and within a short-term trading range---a healthy chart.

 Bottom line: the Averages are now challenging multiple resistance levels.  If successful, the assumption will be that they will likely return to at least their former highs (26656, 2942).

UUP, TLT and GLD again seemed to be acting as safety trades.

Thursday in the charts.


    Fundamental

       Headlines

Yesterday’s stats were upbeat: weekly jobless claims declined and the January Philadelphia Fed manufacturing index was much better than expected.

            The Fed reported the latest activity on its balance sheet.  It showed that the run off in Treasuries and mortgage backed securities continued through the end of last week.  Of course, the Fed can stop anytime.  But so far whatever dovish sentiment exists within the Fed is not being applied to QT.  Which means the global central liquidity infusion that I reported yesterday is exclusive of the US.

I already noted that the Bank of China has been very aggressive of late injecting reserves into its banking system for seasonal reasons.  Of course, given the recent economic data out of China, it could be doing even more (remember, these guys fudge the numbers and their narrative habitually).        

            I am not sure how to balance the two reports.  Unquestionably, increasing global liquidity will have a positive impact on asset prices.  On the other hand, because so many global trade and security transactions are dollar denominated, if the Fed is maintaining QT (shrinking the supply of dollars) then that will have an outsized effect on global liquidity.  All I can do is watch the data.

            The only real fiscal news was not news at all but rumors regarding the China trade deal---the primary one being Mnuchin was pushing for US concessions on tariffs to move the trade talks along.  It was then promptly disavowed.  Who’s on first?

            Bottom line: the economy is slowing though it is not clear by how much.  We are clueless about the outcome of the China/US trade negotiations which regrettably may also be the case with the administration.  The conflicting monetary stats only adds to the confusion.  At times like this, I fall back on the Markets (the technicals) to give me a signal as to what is going on---in the end, the Markets are infinitely more knowledgeable than I.

            The positive side of the government shutdown.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

     International

            December Japanese CPI fell 0.2%; ex food and energy, it was flat.

            December UK retail sales declined 0.9% versus forecasts of -0.8%.

    Other

What I am reading today

            How people communicate before death.

            The reasonable way to view marijuana risks.
           
            Al Capone and marijuana.

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