Wednesday, February 13, 2019

The Morning Call--Everything coming up roses


The Morning Call

2/13/19

The Market
         
    Technical

The Averages (DJIA 25425, S&P 2744) had a blockbuster day.  Their pin action versus their MA’s remains a bit out of sync:  the Dow ended back above its 100 DMA (now resistance; if it remains there through the close on Thursday, it will revert to support) and above its 200 DMA; the S&P is above its 100 DMA (now support) and right on its 200 DMA (now resistance).  Both recently voided their very short term uptrends but still haven’t surpassed their prior lower highs. 

Volume rose; but surprisingly breadth was mixed.

The VIX fell 3 ¼%, finishing below both MA’s (now resistance) but is still in a short term uptrend.

The long bond was down, but remained above both MA’s, in short and intermediate-term trading ranges and in a very short-term uptrend.

The dollar declined but ended above both MA’s and in a short-term uptrend.  It did retreat from the upper boundary of its mid-November to present consolidation phase. 

GLD rose, closing above both MA’s, within very short-term and short-term uptrends.

 Bottom line: so much for lost upward momentum.  The Averages did a moonshot yesterday, though they (1) are only back to last week’s highs and (2) are still some distance away from topping their last lower high.  Follow through is the key at this point.

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

            For those of you interested in Elliott Wave analysis.

            Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s data releases were weighed to the negative: the January small business optimism index was disappointing as were month to date retail chain store sales; on the other hand, the December job openings report was strong.  Nothing overseas.

            There were three headlines yesterday, two of which I covered in Tuesday’s Morning Call:

(1)   a potential compromise in congress on ‘the wall’/government shutdown issue,

***overnight, CNN reports that Trump will sign legislation.


       How government shutdowns impact the economy.

(2)   hopeful noises out of Trump and the Chinese regarding a trade agreement.

***overnight, Xi said that he will join current talks as a sign of goodwill.

            The third was the release of a senate finding that there was no Trump/Russia collusion.

                Bottom line: in the long term scheme of things, I don’t think that ‘the wall’/shutdown issue will be that impactful on economic/corporate growth.  Nor do I think that Trump/Russia collusion debate is anything more than partisan politics---given the information we now have.

            A trade deal with China (assuming there is any give on their part) would be a plus; though the Chinese were perfecting the ‘art of the deal’ centuries ago.  So, I think that extracting real change in industrial policy out of these guys will take a lot longer (if at all) than seems to be built into investor hopes right now. 

            Meanwhile, in my opinion, the economy is not as strong as many believe (or as the Fed claims it to be).  Plus, corporate earnings appear to be set for a rough ride; not helping are a weakening global economy and a strong dollar.

            Finally, QE II, III and IV never did that much to improve the economy, so if the economy does go into a recession (remember that is not my forecast) QE V won’t either.  The problem is that given that the Fed waited far too long to begin normalizing monetary policy and has barely began to shrink its balance sheet, any new infusion from a QE V will likely be meaningless to the economy. 

            ***last night, an FOMC governor a plan for tapering the Fed’s balance sheet runoff will be discussed.

On the other hand, all those past QE’s were highly beneficial to asset prices; and given the Fed hesitancy to do anything Market unfriendly (and as I continually point out, nowhere in the Fed mandate is keeping investors happy), QE V could push asset prices higher. 

However, remember that asset misallocation was also part of that equation; and currently signs abound (see below) that the time may be at hand at which the chickens of asset misallocation maybe coming home to roost, i.e. defaults arising from too much debt being assumed to pay for marginally profitable investments.  That said, so far, investors are paying little attention to these developments.
      
            More on the Chinese debt (default) problem.

                More on the EU banking system’s problems.
               
                And even more.

            More on a possible earnings recession.

    News on Stocks in Our Portfolios
 
            Cummins (NYSE:CMI) declares $1.14/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

Month to date retail chain store sales grew at a slower pace than in the prior week.

December job openings stood at 7.3 million versus expectations of 6.9 million.

          Weekly mortgage applications declined 3.7% while purchase applications were down 6.0%.

            January CPI came in unchanged versus forecasts of up 0.1%; ex food and energy, it was up o.2%, in line.

     International

            December EU industrial production fell 0.9% versus estimates of -0.4%.

    Other

            The looming entitlement problem.

                The value of Chinese/US trade is shrinking.

               
                Total household debt continues to grow.

What I am reading today

            The biggest economic divides are regional, there are local.
           

                        Eleven facts about Blazing Saddles on its 45th birthday.

                US/EU to impose additional sanctions on Russia.
           

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