The Morning Call
2/27/19
The
Market
Technical
The Averages
(DJIA 26057, S&P 2793) paused yesterday---not surprising since (1) they are
very overbought and (2) the S&P has been struggling with the critical 2800
level---intraday, it again traded above 2800 but again fell back. However, the
Dow ended above its prior lower high (25977). It is still too soon to make a
big deal out of this; but this pin action has the characteristics of a
top. So, follow through is important.
Volume dropped;
breadth was mixed.
The VIX was up 2%. However, it remains below both MA’s and in a
very short term downtrend.
The long bond
rose ½ %. While it ended above both MA’s,
the question remains, has it made a triple top.
The
Triple B problem.
The dollar declined
ten cents, but still finished above both MA’s and within a short-term
uptrend. However, it just made a lower
high after failing to trade above the upper boundary of the November to present
trading range and is approaching its 100 DMA.
GLD was up; its
chart remains strong.
Bottom line: the
S&P failed to push through the 2800 resistance for a second time in as many
days. This after a steady stream of US/Chinese
trade happy talk and on a day in which Powell basically said everything the Markets
could hope for. Sloppy pin action amidst
positive headlines and a stronger than usual VIX continues to suggest that the
current rally may be coming to an end.
As I said above, follow through will determine that. That said, even if they have reached an interim
high, that doesn’t mean a major sell off is in the cards.
Gold’s chart remains strong; UUP is
stuck in a range and the long bond may be starting
to suggest that rates could be moving up.
Money
supply and stock prices.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic releases were pretty positive: February consumer confidence and the
February Richmond Fed manufacturing index were well above forecasts; the
December Case Shiller home price index was below estimates---though that could
be interpreted bullish or bearish depending on you perspective; and month to
date retail chain store sales grew slower than in the prior week.
Everyone’s
focus was on Powell’s first day of his Humphrey Hawkins testimony before
congress. He basically repeated the
narrative outlined in the January FOMC meeting statement: the economy is
healthy but there are headwinds so ‘patience’ (the new operative monetary
policy mantra) is warranted, i.e. fewer if any rate increases and revamping QT
this year. As you know, I am not
thrilled with ending QT (it continues to enable the mispricing and misallocation
of assets which I believe inhibit economic growth).
However,
in the Q and A session. Powell rejected Modern Monetary Theory (countries that
borrow in their own currency have the ability to borrow unlimited amounts of
money). Thank you, Mr. Powell.
Unfortunately,
nonsense continues to spew forth from the Fed.
Bottom
line: the Fed continues to deliver a Market friendly narrative. While I think stopping QT is a mistake, I am
in the minority. So, all other things
being equal, I expect the Market will maintain a positive bias especially if a
US/China trade agreement is forthcoming.
That is, until investors absorb the economic consequences of the gross
mispricing and misallocation of assets---a circumstance about which I have no
clue.
News on Stocks in Our Portfolios
FDA
expands use of Medtronics’ Resolute-DES
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the prior week.
Weekly
mortgage applications rose 5.3% while purchase applications were up 6.0%.
The
December trade deficit was $79.5 billion versus consensus of $73.7
billion---the rise being driven by a big decline in exports.
The
December Case Shiller home price index was up 0.2% versus expectations of up 0.4%.
February
consumer confidence came in at 131.4 versus estimates of 128.0.
The
February Richmond Fed manufacturing index was 16 versus forecasts of 3.
International
February EU economic
sentiment was reported at 106.1 versus projections of 105.9.
Other
Economic growth set to slow
again.
Should we fear budget deficits?
More on the debt cap dilemma.
Inflation risks and inflation
expectations. The argument here is that
the Fed will respond with force to an increase in inflation. Unspoken is whether it will do it
irrespective on the Markets’ reaction.
The impact of high state income
taxes.
The
problems with a wealth tax.
What
I am reading today
Cherish your exceptions.
Neuroscientists
have a new form of neural communication.
State level trends in
residential real estate valuations.
The easiest retirement
choice.
Life probably
exists beyond earth. How do we find it?
The
India/Pakistan food fight is getting out of control.
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for Survival’s website (http://investingforsurvival.com/home)
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