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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