The Morning Call
1/23/19
The
Market
Technical
The Averages
(DJIA 24404, S&P 2632) sold off yesterday. This retreat brought the indices
back very close to that 61.8% Fibonacci retracement level (24350,2631). If they remain there through the close today,
that raises the odds that December 24 was a bottom and more upside is to be
expected. That said, both Averages
remain below both MA’s and are in short term trading ranges.
In addition, the
S&P fell below the lower boundary of its very short term uptrend; if it
remains there through the close today, that trend will be voided. However, that trend’s angle of ascent was so
sharp, it was bound to be negated at some point soon.
Volume declined;
breadth was weak.
The VIX jumped
15 ½ %, and in the process voided last Thursday’s break of its 100 DMA. It remains above its 200 DMA and in a
short-term uptrend.
The long bond increased
5/8 %, ending above both MA’s, in short and intermediate-term trading ranges
and in a very short-term uptrend and above its last prior higher low.
The dollar was unchanged,
closing above both MA’s, in a short-term uptrend and is pushing towards the
upper boundary of that mid-November to present consolidation phase.
GLD was up 3/8%,
finishing well 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 testing
their Friday break of the 61.8% Fibonacci retracement level, the results of which
would influence technicians as to whether the December 24 low was a bottom or
just a stop on the way down. We will
know more at the close today.
UUP, TLT and GLD
followed the indices’ move, reversing field and pointing to lower rates.
Friday in the charts.
Fundamental
Headlines
One
US datapoint was released yesterday and it did not make for great reading:
December existing home sales were terrible.
Overseas,
China reported Q4 GDP growth slightly lower than in Q3, December fixed asset
investments and industrial production were in line while retail sales were a
tad better than anticipated.
The
fiscal picture was somewhat confusing:
(1)
as you know, last Saturday, Trump made an offer to
resolve the shutdown standoff which the dems turned down before the ink was
dry. Now there are two bills [one from
the GOP, one from the dems] before the senate---both of which are attempts to
get the government open and compromise on ‘the wall’. It is scheduled to vote on both on Thursday. I still consider this cat fight as much ado
about nothing. But if it impacts
investor psychology, then it is important for stock prices,
(2)
the news flow on US/China trade was even more
befuddling. It started with a rumor that
the US had declined an offer to meet Chinese trade official [which was credited
with the decline in equity prices].
Then, as always occurs when bad trade news hits newswires, the
administration ran out a spokesman to deny and deflect. This time it was that the meeting had never
been ‘formally’ proposed. Setting aside whether
or not a trade deal can be made, what is distressing about this whole situation
is that the White House thinks that it is necessary to respond to any headline
that negatively impacts stock prices.
First, because it suggests that either Trump [a] is
more worried about Market moves than in negotiating in fairer trade deal with
China which could mean a less than optimal outcome or [b] is praying that he
can cut a good deal with China because if he doesn’t, he has likely built too
much good news in stock prices right now.
Second, because fiscal policy has joined monetary
policy making the Market a key determinant of strategy. How can there not be mispricing and
misallocation of assets in an environment where politicians and economists attempt
to manipulate the pricing of risk?
Bottom line:
nothing in the economic outlook either here or abroad suggests higher corporate
profits. Yes, investors can markup multiples. The problem is that many are already at nosebleed
levels.
I don’t know how
the story ends when both fiscal and monetary policies become subservient to the
Markets/investor psychology. I do
suspect that many decisions made will not be in the best long term interest of
the economy/electorate; and sooner or later a price will be paid.
The
latest from Ray Dalio.
Looking
the cash component of your portfolio.
Jack
Bogle’s three great insights.
News on Stocks in Our Portfolios
IBM (NYSE:IBM):
Q4 Non-GAAP EPS of $4.87 beats by $0.05; GAAP EPS of $2.15.
Revenue of $21.76B (-3.5% Y/Y) beats by $30M.
Kimberly-Clark (NYSE:KMB): Q4 Non-GAAP EPS
of $1.60 misses
by $0.05; GAAP EPS of $1.18 misses by $0.19.
Revenue of $4.57B (-0.7% Y/Y) beats by $120M.
Kimberly-Clark (NYSE:KMB) declares $1.03/share quarterly dividend, 3%
increase from prior dividend of $1.00.
Economics
This Week’s Data
US
December
existing home sales fell 6.4% versus consensus of a very small decline.
Weekly mortgage
applications fell 2.7% while purchase applications were down 2.0%.
International
The
Bank of Japan left monetary policy unchanged.
It lowered its estimate of the Japanese economy’s growth in 2018 but
raised it for 2019 and 2020. However, it
also lowered its inflation outlook which is something of a wash. (if nominal growth is 3%, composed of 2% real
growth and 1% inflation, then keeping nominal growth at 3%, if inflation is
lowered to ½% then real growth goes up to 2 ½%)
Other
The
main economic problem of the eurozone.
Fickle
fortune.
CEO’s
less confident about economic growth.
What
I am reading today
Music for people living
with dementia is a necessity.
Should retirees worry about bear
markets?
https://www.advisorperspectives.com/commentaries/2019/01/22/should-retirees-worry-about-bear-markets
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