Friday, February 15, 2019

The Morning Call--Another Fed governor goes dovish

The Morning Call


The Market

The Averages (DJIA 25439, S&P 2745) took a rest yesterday.  The Dow ended above its 100 DMA for the third day, reverting to support and above its 200 DMA (now support) but below the lower boundary of its newly reset very short term uptrend (if it closes below this boundary today, it will be voided).  The S&P remained in a very short term uptrend, above its 100 DMA (now support) but closed right on its 200 DMA (now resistance), stopping the clock on this challenge.   Both remain below their previous lower highs (~25977, 2800).

Volume rose (this is option expiration week; so an increase in volume and volatility is to be expected) and breadth was weak.

The VIX was up another 3 ½%, continuing its bounce off the lower boundary of its short term uptrend.  But it remains below both MA’s (now resistance).

The long bond was up ½%, finishing above both MA’s, in short and intermediate-term trading ranges.  In addition, it ended back above the lower boundary of its very short-term uptrend, negating Wednesday’s break.
The dollar was down three cents, finishing above both MA’s, in a short-term uptrend and above the upper boundary of its mid-November to present consolidation phase---suggesting renewed momentum to the upside. 

GLD rose ½%, closing above both MA’s (the 100 DMA is crossing above its 200 DMA---a positive technical signal) and within very short-term and short-term uptrends.  

 Bottom line: the Averages paused yesterday but held up fairly well in the face of some negative headlines.  It was a bit disappointing that there wasn’t additional follow through from Tuesday’s and Wednesday’s move up.  But I see no reason why they won’t at least challenge their prior lower highs.

          The dollar, bonds and gold seem to be attracting ‘safety trade’ investors even though their daily activity is not always consistent.

            Thursday in the charts.



            The dataflow this week continues to be dismal: weekly jobless, November business inventories/sales and December retail sales were poor while the January PPI headline and ex food and energy readings were mixed.

            As a caveat to the retail sales (primary indicator) number, the pundit narrative was dominated by apologists explaining all the reasons why there were seasonal/technical factors that mitigated its lousy report.  Assuming that is true, I think it a stretch to assume that there wasn’t any bad news in this stat.

            Overseas, the data was somewhat mixed: Q4 EU GDP was in line, Q4 German GDP was short of estimates; January Chinese exports soared while imports were down.

            In other news:

(1)   Trump decided to sign ‘the wall’/shutdown bill but apparently intends to declare a national emergency to obtain further funding.  That will likely generate yet another political standoff with the dems.


(2)   China appears to be holding tough on forced technology transfers.

***overnight, there was a lot of happy talk from both sides about continuing negotiations.  However, Xi made it clear that it didn’t include IP theft.

(3)   and, last but not least, another Fed official goes dovish.

            Bottom line: (1) the economic data continues to point to a slowing economy.  (2) Trump may sign ‘the wall’/shutdown legislation but [a] I never thought that this was going to have an impact on the economy and [b] the political standoff will apparently continue if he declares a national emergency.  (3) I have been a sceptic regarding any early Chinese capitulation on IP theft.  Yesterday’s headline confirms that.  I continue to think that the only way there is a US/Chinese trade agreement is if Trump folds.  (4)  Offsetting all this is what appears to be the re-establishment of the Fed ‘put’.  That ‘put’ has been sufficient to overwhelm almost all negative headlines for the last decade.  While I believe that this too will end, my assumption is that it will continue until a trigger event stops it.

            As prices move up, my strategy is to Sell Half of any holding when the stock price enters that Range.

    News on Stocks in Our Portfolios
Nike (NYSE:NKE) declares $0.22/share quarterly dividend, in line with previous.

PepsiCo (NYSE:PEP): Q4 Non-GAAP EPS of $1.49 in-line; GAAP EPS of $4.83.
Revenue of $19.52B (-0.1% Y/Y) in-line.

   This Week’s Data


            November business inventories fell 0.1% versus expectations of a 0.2% increase; worse, sales declined 0.3%.

            The February NY Fed manufacturing index came in at 8.8 versus consensus of 7.6.

            January import prices declined 0.5% versus estimates of unchanged; exports prices dropped 0.6% versus forecasts of up 0.1%.


            January Chinese CPI rose 0.5% versus December’s reading of unchanged; PPI was -0.6% versus -1.0%.

            The January Chinese all-system aggregate financings hit a new high, i.e. credit/liquidity expansion.


            Is the Fed insolvent?

            More on auto loans (delinquencies).

            January LA port traffic.

            Short money rules.

            Latest on Brexit.

What I am reading today

            Questions and answers regarding your 2018 tax bill/refund.

            Why you might want to consider not taking social security at 65.

            The Green New Deal.

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