The Morning Call
1/17/19
The
Market
Technical
The Averages
(DJIA 24207, S&P 2616) made another decent advance yesterday. 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. The S&P closed above the upper
boundary of its short-term downtrend (if it remains there through the close on
Friday, it will reset to a trading range).
It is also in a very short-term uptrend.
They remain in
the trading range between the 50% and 61.8% Fibonacci retracement levels---which,
as I noted yesterday every trader in the galaxy is watching this range. If they can trade above the 61.8% level (24350,
2631), the view would be that the indices made a bear market low on December 24
and will continue to move to new highs.
If they trade below the 50% level (23844, 2577), then the view would be that
the latest uptrend was just a rally in a bear market.
Volume rose
slightly; breadth was mixed---like yesterday, a little surprising for a broad
up day.
The VIX was up 2
3/8 %---an unusual occurrence on a solid up day. It ended back above its 100 DMA, negating
Tuesday’s break. It has now failed to
successfully challenge this boundary for the second time in less than a
week. It remained above its 200 DMA and
in a short-term uptrend.
The long bond rose,
finishing above both MA’s, in short and intermediate-term trading ranges, in a
very short-term uptrend and failed an intraday challenge of its prior higher
low.
The dollar was up,
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 advanced 3/8
%, ending above both MA’s, within a very short-term uptrend and within a
short-term trading range---a healthy chart.
Bottom line: The Averages continue
trade in an important (at least to the technicians) technical range. I think that a successful S&P challenge
of its short-term downtrend would give weight to the notion that the indices
will break the upper boundary of the Fibonacci determined trading range.
I continue to
watch the technical levels and let the Market tell me if the December bear market
is over or just experienced a counter trend rally.
Yesterday’s pin action in TLT, UUP and GLD was
back to sending an uncertain message on the economy---unless they are all
acting as a safety trade.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic releases were slightly positive: weekly mortgage and purchase applications
as well as the January housing market index were upbeat; December import prices
fell less than anticipated but export prices declined more.
Here is the first
estimate of the impact of the shutdown on GDP growth. It is higher than I thought; but we won’t
know until the data comes in.
The Fed released
its latest Beige Book which again portrayed the economy as growing, labor
markets tight but with increasing concerns over financial market volatility (that seems to be fading
fast), rising short-term interest rates (not with Powell’s new improved policy),
falling energy prices (they are up in the last month), and elevated trade and political
uncertainty (OK, that is one
out of four).
https://www.calculatedriskblog.com/2019/01/feds-beige-book-economic-growth-modest.html
https://www.calculatedriskblog.com/2019/01/feds-beige-book-economic-growth-modest.html
US
monetary policy has helped tame Chinese ambitions.
And if that doesn’t work, maybe
a federal investigation of Huawei will.
****overnight: meanwhile,
Chinese shipping rates provided further evidence of growing weakness in the
Chinese economy.
The mispricing of assets---the
ECB version.
Bottom line: I
have noted of late that there are a number of economic/political factors that could
negatively impact the Markets. However, what
I have been most focused on is monetary policy---my thought being that a continuation
of QT will weigh the heaviest on stock prices.
Yesterday, we received the most recent data on global central bank
balance sheets and it reflected huge liquidity injections over the last
month. We do know that at least some of
this liquidity is being provided by the Bank of China for what appear to be seasonal
reasons.
***overnight, another
huge injection by the Bank of China.
Central bank
balance sheets once again growing.
Compare and contrast this
chart of gold against the chart on monetary growth in the above link.
That said, if
the central banks are back pumping money into the financial system, then I think
stocks are going higher and, hence, that the technical question discussed above
will resolve itself to upside---unless the global economy is falling into
recession, which is not my forecast.
Of course, that
means that stocks, in general, will not be any less overvalued.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The January
housing market index came in at 58 versus an estimate of 57.
Weekly jobless
claims fell 3,000 versus expectations of a 5,000 increase.
The January
Philadelphia Fed manufacturing index was reported at 17 versus forecasts of 10.
International
Other
Brexit
chaos.
What
I am reading today
Professional investors
are terrible at selling.
Hauser’s law on tax
collections.
So much for the globalist’s
‘we are the world’ narrative.
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