The Morning Call
2/20/19
The
Market
Technical
The Averages
(DJIA 25891, S&P 2779) followed through slightly on Friday’s big up move. The Dow ended above its 100 DMA (now
support), above its 200 DMA (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 second day (if it remains there through the close on Thursday, it will
revert to support). Both remain below
their previous lower highs (~25977, 2800).
Volume fell and
breadth improved, and, in fact, is now in overbought territory--- though the
flow of funds indicator is weakening.
The VIX fell three
cents, but still ended below the lower boundary of its short term uptrend (if
it remains there through the close today, it will reset to a trading range). And it remains below both MA’s (now
resistance).
The long bond
was up ¼%, finishing above both MA’s, in very short term uptrend and within short
and intermediate-term trading ranges.
The dollar declined
on heavy volume but closed above both MA’s and within a short-term uptrend. However, it continued to fall away from the
upper boundary of its mid-November to present consolidation phase---though
still not enough to concern me.
GLD rose 1½% on huge
volume, ending 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 about to
challenge 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 even though their daily activity is not
always consistent.
Tuesday in the charts.
Why
bear markets are getting shorter.
Fundamental
Headlines
One minor
datapoint released yesterday: the February housing market index was ahead of estimates.
There was also
one piece of anecdotal evidence---Walmart reported a strong fourth
quarter. This along with Amazon’s Q4
results is lending credibility to the notion that the lousy December retail
sales number reported last week was negatively impacted by seasonal and
technical factors and, hence, was not nearly as poor as it appeared.
In other news:
(1)
Trump appears to be backing off the March 1 deadline for
imposing additional tariffs on China.
But issues remain other than Chinese
industrial policy and IP theft,
(2)
a second Fed governor advocated easier monetary policy.
And as I reported
yesterday, the Bank of Japan is now considering easing its already expansive
monetary policy.
Bottom line: if history
is any guide, as long as the global central banks are returning to monetary
ease, 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, leaving
central banks 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.
The Fed’s
conundrum.
Yes, if the US/Chinese
trade talks end without a positive result, I am sure the Markets will sell off;
but in the absence of the aforementioned problems, I think it will be short
term in nature.
In the meantime,
if any stock that trades into its Sell Half Range, I will act accordingly.
Stocks have best
reaction to poor earnings in nine years.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
February housing market index was reported at 62 versus estimates of 49.
Weekly mortgage
applications rose 3.6% while purchase applications were up 1.7%.
International
The
January Japanese trade deficit was Y1.4 Billion versus forecasts of Y.987
billion largely as a result of plunging exports.
Other
The
problem is political, not economic.
This
article is supportive of modern monetary theory. The only problem is that while arguing that high
levels of debt don’t inhibit economic growth, it doesn’t provide an alternate
explanation of why economic growth has been inhibited. In my opinion, the explanation is that the
funds raised by the debt are invested in marginally profitable projects (the
misallocation of assets) which result in below average growth in sales and profits.
Counterpoint from Ed
Yardini.
The
global slowdown continues.
What
I am reading today
Tax luxury not income or
wealth.
Investing a lump sum---immediately
or over time?
Be an investment skeptic.
Barry Ritholtz on Amazon’s decision
to bail on its proposed NY headquarters.
Calculating the total cost of ETF
ownership.
The importance of Copernicus.
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for Survival’s website (http://investingforsurvival.com/home)
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