The Morning Call
1/4/19
The
Market
Technical
The Averages
(DJIA 26866, S&P 2447) took it in the snoot yesterday as the weak
China/Apple data was compounded by a poor US ISM manufacturing index. 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 and traded back below the upper
boundary of the very short-term downtrend that it negated on Wednesday. My rule of thumb in instances where there is
a very quick reversal of a break is to put the call on hold and wait for follow
through. All that said, both Averages
are still well above their December lows.
So, there is still potential downside before we get a read on whether that
low represents a bottom.
Volume was up;
breadth negative.
The VIX rose 9 ½
%, ending above both moving averages and in very short-term and short-term
uptrends---and is still cheap relative to the intraday stock price moves of
late. Its chart remains strong which is
bad on stocks.
The long bond soared
1 1/8 % on huge volume, closing 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. Not only are
long rates down, but short rates are cratering and are now below the Fed Funds
rate---which is not supposed to happen.
And
the latest from Jeffery Snider (must read):
The dollar fell
fractionally, remaining above both MA’s and in a short-term uptrend. However, it is still within the mid-November
to present consolidation range. It was a bit usual for the dollar to be down on
a big risk off-day.
GLD move up 1%
on high volume, closing above both MA’s and within a short-term trading range.
Bottom line: I noted yesterday that the
Averages appeared to be losing the velocity of their bounce off the December 26
low. The question now is follow through
and whether the indices will challenge that December low. We should get a good look at the answer today
as Powell is scheduled to speak.
The
long bond continues its advance, accompanied by higher prices at the short end
of the curve. The fixed income markets
are clearly worried about something. (As
you know, I believe the bond market is a better read on what is occurring in
the economy than the stock market.)
The
dollar closed at the high end of its recent consolidation range. Longer term, its chart remains strong and
will likely continue to do so if there are increasing dollar funding
(liquidity) problems.
Thursday
in the charts.
Fundamental
Headlines
Yesterday’s
economic releases were negative: weekly mortgage and purchase applications,
weekly jobless claims and the December ISM manufacturing index were disappointing. There was a bright spot---the December ADP private
payroll report was strong.
These
stats set the theme for the day---weakening economic activity (poor data from
China on Thursday, disappointing earnings guidance from Apple Thursday after
the close and the lousy ISM manufacturing index). Making investors even more nervous was
turmoil across the yield curve, suggesting that a lot of bond money is running
for safety---although that may have more to do with liquidity than growth.
Bottom line: the
economy is slowing. We have known that
for months and its primary cause is fiscal irresponsibility. Sure, the trade dispute with China
contributes. But the US has been, is and
will continue to be stuck with a below average secular economic growth rate. But I still don’t believe recession is in the
cards.
What is in the
cards is the repricing of risk brought on by the Fed taking away the punch
bowl. Unfortunately, that means Market
disruptions as marginal creditors, inefficient businesses and speculators are
deprived of free money. In my opinion, that
is what the bond market is concerned about---the end of the mispricing and
misallocation of assets. And it appears
that the stock market may be figuring it out also.
Lessons
learned from Apple’s collapse.
More
on valuations.
And:
December
dividends by the numbers.
***overnight,
the US and China announced that meeting of the vice-ministers of trade would
meet on January 7/8.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
December ISM manufacturing index was reported at 54.1 versus expectations of
57.9.
The
December employment report showed a gain 36,000 jobs versus estimates of an
increase of 25,000; plus, the November number was revised up by 24,000 jobs.
International
The
December EU composite PMI came in at 51.1 versus the November reading of 52.7.
The December Japanese
manufacturing PMI was 52.6 versus November’s 52.1.
The
December Chinese services PMI was 53.9 versus the prior month’s 53.8; the composite
PMI was 52.2 versus November’s reading of 51.9.
Other
The euro’s wild ride.
The
J.P. Morgan global manufacturing PMI hit the lowest level since 2016.
What
I am reading today
Pelosi says that a
sitting president can be indicted.
How not to be
stupid (must read):
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