The Morning Call
1/16/19
The
Market
Technical
The Averages
(DJIA 24065, S&P 2610) made a strong showing yesterday, despite a plethora
of bad news. However, both indices finished below both moving averages (the 100
DMA’s are close to crossing below the 200 DMA’s [the S&P has done it]---an
historically negative technical signal).
The Dow finished in a very short-term downtrend and a short-term trading
range. The S&P is in a short-term downtrend but a very short-term uptrend.
The good news is
investors bought stocks in the face of bad news. The bad news is they have yet to make a challenge
of their short-term trends. Plus, they
can’t get out of the trading range between the 50% and 61.8% Fibonacci retracement
levels---which may mean little to the average investor, but I promise 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. Further, the S&P
needs to successfully challenge the upper boundary of its short-term downtrend
(~2613---yeah, it’s close) before it makes any sense to start thinking that the
worst is over.
Volume rose
slightly; breadth was mixed---a little surprising for a broad up day
The VIX was down
3 ½ %. It ended back below its 100 DMA
(now support; if it remains there through the close on Thursday, it will revert
to resistance). It remained above its
200 DMA and in a short-term uptrend. Like
the Averages, it is starting to test levels associated with a change in trend.
The long bond
was down another 3/8%, but finished above both MA’s, in short and
intermediate-term trading ranges and in a very short-term uptrend. However, it
is poised to test its prior higher low---a slight hint that the current decline
in rates may be challenged.
The dollar was up
3/8%, 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 fell, but
remains 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 am torn between believing whether it is great
news that the indices have held in this range in spite of poor economic and earnings
data or bad news that they have been unable to challenge the upper boundary of
those ranges.
In addition, the
S&P is near challenging the upper boundary of its short-term downtrend.
My solution is to
watch the aforementioned 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
consistent with the scenario of rising rates.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic releases did not make for good reading: December PPI fell, the January
NY Fed manufacturing index came in well below estimates and the growth in month
to date retail chain store sales slowed.
It
wasn’t much better overseas: 2018 German GDP slowed versus 2017 and both EU
imports and exports declined.
Responding
to the lousy trade data on Monday, yesterday China announced a new stimulus package.
***overnight,
Bank of China made the biggest one-day liquidity infusion ever into its
financial system.
More
on those poor Chinese import/export numbers and what they mean to global trade.
In addition, the turmoil
over Brexit continued as the parliamentary vote on May’s plan went down in
flames. What’s next?
Back
to the US, the Fed’s biggest hawk turned dovish.
The shutdown is setting new
records (in length) everyday which has some observers concerned. Me not so much.
Bottom line: there
is plenty about which to worry: (1) the US and global economies are slowing,
(2) that is showing up in corporate earnings reports and forward guidance and (3) the latest we have on China trade talks [senator
Grassley quoting trade official Lighthizer that little progress has been made]
is not encouraging; even if that is just BS, the fact is that all we have is
another BS narrative: Trump’s.
***overnight,
Draghi says EU will not go into a recession.
***overnight, both
Goldman and BofA beat earnings expectations.
On the other
hand, most everyone (1) knows the aforementioned negatives and (2) apparently
believes that Powell has reinstated the Fed ‘put’. So, if the negative news has, indeed, been
discounted and the Fed is again the Markets’ friend, then it seems reasonable that
stocks are going higher.
It is this
latter point (the Fed ‘put’) that I am most uncertain about. As I noted yesterday, until it is clear that
the Fed has ceased QT, I think that investors are going out on a limb chasing
stock prices at current valuation levels.
Speaking of which:
The
latest BofA Fund Managers Survey.
News
on Stocks in Our Portfolios
Revenue
of $3.43B (-8.8% Y/Y) misses by $10M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the prior week.
Weekly
mortgage applications rose 13.5% while purchase applications were up 9.0%.
December
import prices fell 1.0% versus expectations of down 1.2%; export prices
declined 0.6% versus estimates of -0.3%.
International
Other
The
latest from John Mauldin.
The latest on student
debt.
What
I am reading today
Beware the gatekeeper.
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