The Morning Call
2/21/19
The
Market
Technical
The Averages
(DJIA 25954, S&P 2784) continued their rally. The Dow ended above both MA’s (now support)
and in a very short term uptrend. The
S&P remained in a very short term uptrend, above its 100 DMA (now support),
above its 200 DMA (now resistance) for a third day (if it remains there through
the close today, it will revert to support).
Both remain below their previous lower highs (~25977, 2800).
Volume was flat
as was breadth---remaining in overbought territory.
The VIX fell 5 ¾
% percent, ending below the lower boundary of its short term uptrend, resetting
it to a trading range. It remains below
both MA’s (now resistance) and now is reflective of the surge in equity prices.
The long bond declined
¼%, but finished above both MA’s, in very short term uptrend and within short and
intermediate-term trading ranges.
The dollar was up
two cents, closing above both MA’s and within a short-term uptrend.
GLD was off ¼%, but
still ended 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 are within a
short hair of challenging their prior lower highs. If successful, it would set the stage for a
move to their all-time highs. Though
given their very overbought condition, some retreat makes sense in the short
term. However, I don’t think that any
consolidation lowers the odds of a test of those prior lower highs.
The dollar, bonds and gold seem to be
attracting ‘safety trade’ investors with gold and the long bond being very strong
(gold typically rallies on lower interest rates).
Fundamental
Headlines
Yesterday
was another slow day for data: mortgage and purchase applications were up and
month to date retail chain store sales were up from the prior week. Overseas,
EU consumer and business confidence continues to wane though not quite as much
as predicted.
The
big headline of the day was the release of the minutes from the last FOMC
meeting. They largely reflect the
changed narrative by Fed members over the last month, their primary points were:
(1)
it cited softer consumer and business sentiment and slowing
global economic growth as factors leading to a declining growth rate in the US
economy,
(2)
it is concerned about tightening credit conditions---which,
of course, is its doing,
(3)
it plans to review its interest rate and QT policies at
its March meeting, pointing to an easier monetary policy.
In my opinion,
the most important takeaway was the confirmation that QT is or will be ending
soon. That leaves the mispricing and
misallocation of assets as the primary risk from a too accommodative Fed.
The problem with
Fed forecasts.
***overnight, the ECB met, expressing
concern about EU economic growth and stating the odds of a new round of QE has
increased.
In other news, China
agreed not to use exchange rates as policy tool in trade disputes (remember,
these guys lie a lot).
***overnight,
US/China trade representatives are working on six ‘memoranda of understanding’
covering the major areas of US concerns.
Prominent
among them. China proposes to buy its way out of changes in industrial policy
and IP theft.
Bottom line: the
latest minutes confirm the shift in Fed policy towards easing. So, the global central banks are unanimous in
their returning to monetary ease, meaning that short term, stocks are likely to
continue to advance whatever the news flow.
The only potential problems are (1) if inflation returns forcing tighter
monetary policy, (2) if a recession starts, central banks have with few policy
tools to reverse declining economic activity or (3) if valuations get so
stretched that even the algos realize that there are no greater fools left.
In the meantime,
if any stock that trades into its Sell Half Range, I will act accordingly.
The
latest snapshot of expected 2019 S&P earnings.
News on Stocks in Our Portfolios
Revenue of $2.36B (+1.3% Y/Y) misses by $30M.
Economics
This Week’s Data
US
Month to date
retail chain store sales grew faster than in the prior week.
December durable
goods orders rose 1.2% versus expectations of up 1.0%; ex transportation, they
were up 0.1% versus estimates of up 0.2%.
Weekly jobless
claims fell 23,000 versus forecasts of down 14,000.
The February
Philadelphia Fed manufacturing came in at -4.1 versus consensus of +14.
International
February flash
EU consumer confidence came in at -7.4 versus consensus of -8.0.
The
February Japanese flash manufacturing PMI was reported at 48.5 (anything below
50 indicates contraction) versus projections of 50.3.
The
February EU flash composite PMI was 51.4 versus predictions of 51.1; the
manufacturing PMI was 49.2 versus 50.4; the services PMI was 52.3 versus 51.3.
The
February German flash composite PMI was 52.7 versus expectations of 52.0; the
manufacturing PMI was 47.6 versus 49.7; the services PMI was 55.1 versus 53.0
Other
The
$3 trillion time bomb.
More.
It’s even worse
in the EU.
January
architectural billings up strong.
What
I am reading today
The difference
between the ‘public option’ and ‘Medicare for all’.
Uncomplicating
investing.
Will the US actively pursue regime
change in Iran.
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for Survival’s website (http://investingforsurvival.com/home)
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