Tuesday, February 12, 2019

The Morning Call--the Fed is still the problem

The Morning Call


The Market

The Averages (DJIA 25053, S&P 2709) had a mixed day (Dow down, S&P up).  Their pin action versus their MA’s is at odds:  the Dow is below its 100 DMA (after a failed challenge) and right on its 200 DMA; the S&P is above its 100 DMA and below its 200 DMA.  Both recently voided their very short term uptrends, were unable to surpass their prior lower highs but remain in short term trading ranges. 

Volume declined; breadth was weak.

The VIX was up 1 ½%, finishing below both MA’s (now resistance) but 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 advanced, closing above both MA’s, in a short-term uptrend and at the upper boundary of that mid-November to present consolidation phase. 

GLD was down, but still ended well above both MA’s, within very short-term and short-term uptrends.

 Bottom line: the Averages have voided their very short term uptrends and stalled at the levels of their MA’s, suggesting that they have lost upward momentum.  I am not inferring some dramatic selloff (though as you know, I think that there is one in our not too distant future); rather some weakness to test recent support levels.  At the moment, I am watching to see if indices can trade above their prior lower highs or if they decide to challenge their late December lows.

How the Markets handle the positive overnight news (see below) should give us some directional information.

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



            No US economic data releases yesterday.  Overseas, we got a few negative stats out of the UK which I give less emphasis to than EU numbers due to the uncertainty surrounding the Brexit issue.
            I noted in yesterday’s Morning Call, the recent return of the Fed put.  That may make the Markets happy for a short time.  However, the problem is that the Fed has raised rates and shrunk its balance sheet so little, that there is not much room for monetary stimulus if the global (US?) economy rolls over.


            I also mentioned that that fourth quarter earnings/first quarter guidance has been disappointing.  Morgan Stanley addressed that issue yesterday.
            Bottom line: the US economy is slowing (not declining) while the rest of the world appears to be decelerating at a much more rapid pace.  I continue to believe that the US can avoid a recession though that may not make any difference if corporate earnings fall as many increasingly believe that they will.

            Fed policy remains a problem.  Either it will continue to shrink its balance sheet which will do little to harm the economy but induce pain for the Markets; or it will continue kowtow to the Market and then be forced to admit that it has little ammo when, as and if it can no longer ignore the fact that the economy is not doing half as well as it has been pretending.

            The latest most crowded trade.


(1)   congressional leaders have apparently reached a compromise on the border wall funding/government shutdown issue [though the funds for building ‘the wall’ are woefully short of Trump’s demands]

(2)   Trump again said that he wants a meeting with Xi to resolve trade issues

    News on Stocks in Our Portfolios


   This Week’s Data


            The January small business optimism index was reported at 101.2 versus estimates of 103.0



            Why the US debt will continue to rise.  This is a bit long but addresses the issue on which I keep harping---the increase level of debt constrains economic growth.

            The February business cycle chart book.

            A new fight in Italy; this time over who owns the country’s gold reserves.

            Two Chinese industrial giants are now in default.

            While Deutschebank has its own problems.

What I am reading today

            1000 scientists have signed a dissent questioning Darwin theory of evolution.

                This year’s tax refunds may not be as big as many think.

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