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
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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