The Morning Call
1/8/19
The
Market
Technical
The Averages
(DJIA 23531, S&P 2549) followed through on last Friday’s powerful
rally. It wasn’t dramatic; but coming on
the heels of a 3 ½% up day, it was impressive that there wasn’t some sort of over-bought
retracement. I am sure that at some
point, there will be one. That said both
indices finished below both moving averages.
The Dow finished in a very short-term downtrend and a short-term trading
range. The S&P is in a short-term downtrend. So longer term, there remains
a lot of work to be done to re-establish an uptrend.
Volume decline;
breadth positive.
The VIX fell ½ %,
a bit small for the pin action in stocks.
It still ended above both moving averages and in very short-term and
short-term uptrends and remains relatively cheap.
The long bond was
down another ¼ %. However, it closed
above its 100 DMA (now support), above its 200 DMA (now support) and in short
and intermediate-term trading ranges and in a very short-term uptrend. Nothing here to suggest rates aren’t going to continue
to fall.
The dollar declined
½ %, but remained above both MA’s, in a short-term uptrend and within the mid-November
to present consolidation range. However, it is near the lower boundary of that
range as well as its 100 DMA. So, a challenge
of these boundaries seems likely.
GLD was up ¼ %,
finishing above both MA’s, within a very short-term uptrend and within a short-term
trading range.
Bottom line: there may be more upside
on a very short-term basis; but, eventually, I think that the lows (i.e. the
December 26th low) will get tested.
Of course, the January 3rd higher low could have been that
test; but seemed a bit of a weak challenge to me. So, I think that there are decent odds for a
more substantial test to come.
The long bond investors still don’t seem overly
concerned about higher interest rates. Ditto
for the gold bugs. The dollar is the
only indicator that is suggesting that rates could go higher.
Monday
in the charts.
Fundamental
Headlines
Only
one economic stat reported yesterday: the December ISM nonmanufacturing index
was disappointing. However, we again missed
a primary indicator (factory orders) due to the government shutdown.
Overseas, the
dataflow continues lousy: the December Japanese services and composite PMI’s
were below forecasts as were November German factory orders. The bright spot was November EU retail sales which
were up more than anticipated.
Two
headlines:
(1)
the US/China trade talks began and the meeting received
a surprise visit from the top Chinese trade official, suggesting that China is
serious about reaching an agreement. If
true that would clearly be a major plus for the US and global economies. However,
[a] given the history of the Chinese agreeing to one
thing and doing another, I do think Reagan’s admonition to ‘verify’ is the
right US strategy. So, it will be some
time before we know whether the Chinese follow anything that they agree to,
[b] I continue to worry about Trump accepting an otherwise
unacceptable deal, just to notch another victory,
Un makes a trip to China---of
course, it is unrelated to the trade talks---not.
(2)
Trump announced that he will give an address to the
nation tonight on ‘the national threat at the southern border’. Most speculation is that this strategy provides
him with the cover to spend the money without congressional approval and at the
same time re-open the government. However,
it is likely unconstitutional [congress controls the purse]. So, I am sure the dems won’t take this laying
down.
Bottom line: the
economy is not as healthy as the ruling class would have you believe; but, in
my opinion, it is not as bad as the current doomsayers are predicting. Most important, earnings estimates, ala Apple,
are likely to come down which is not a Market plus.
I know what Powell
said on Friday. I hope that he is not as
dovish as he sounded because if the Fed ‘put’ is back, then we are faced with
another round of bubbles only from a higher level of the Fed balance sheet at a
time of stratospheric government and corporate debt. I just don’t see how this can end well. That said, the Fed ‘put’ will almost surely
re-energize Market psychology---over what time frame I haven’t a clue.
If this rally
ends up challenging the upper boundaries of the indices long term uptrends or their
former highs, I think taking more money off the table is the right strategy.
The latest from Morgan Stanley.
The latest from John Mauldin.
The ugly truth.
The risk of misinterpreting the
Fed.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
December ISM nonmanufacturing index came in at 57.6 versus consensus of 58.4.
The December small
business optimism index was reported at 104.4 versus estimates of 104.0.
International
November German
industrial production fell 1.9% versus expectations of +0.3%.
Other
How much of a
recession is already priced in?
The
outlook for the euro.
Framing lumber
prices down year over year.
What
I am reading today
Bitcoin
is less secure than most people think.
https://marginalrevolution.com/marginalrevolution/2019/01/bitcoin-much-less-secure-people-think.html
Why
a passive healthcare program can produce the most action.
This is an encyclopedia on Chinese
theft of intellectual property.
France in free fall.
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for Survival’s website (http://investingforsurvival.com/home)
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