The Morning Call
2/22/19
The
Market
Technical
The Averages
(DJIA 25850, S&P 2774) finally rested---not surprising, given their extreme
overbought condition. The Dow ended
above both MA’s (now support); the S&P above its 100 DMA (now support) and
its 200 DMA for a fourth day, reverting to support. The bad news is that both finished below the
lower boundary of their very short term uptrends (if they remain there through
the close today, those trends will be negated) and below their previous lower
highs (~25977, 2800).
Volume declined;
breadth was mixed---though it remains in overbought territory.
The VIX rose 3 ¾
%, but still finished below both MA’s (now resistance) and in a short term
trading range.
The long bond was
tagged with a 7/8 % loss, closing above both MA’s, within short and
intermediate-term trading ranges but below the lower boundary of its very short
term uptrend (if it remains there through the close today, that trend will be
negated).
The dollar was up
two cents, ending above both MA’s and within a short-term uptrend.
GLD was off 1%, but
still finished above both MA’s and within very short-term and short-term
uptrends.
Bottom line: the Averages finally had
a down day---which should come as no surprise after their remarkable run up. The key now is the extent of any follow
through. The next visible (minor) support
levels are ~24914/2682. A bounce at those
levels or above wouldn’t be concerning nor, in my opinion, lower the odds of
challenging those lower highs. Anything
greater would start to suggest a possible test of their December lows.
The long bond and gold followed equities
lead and gave up some of their recent gains---which seemed nothing more than
profit taking after a solid move up. The
dollar continues to be impervious to news or the pin action in other markets.
Thursday in the
charts.
Fundamental
Headlines
It
was a big day economic data land: weekly jobless claims fell more than
anticipated; December durable goods orders were above forecasts, but ex
transportation, they were below; the February flash composite and services PMI
were better than expected but the manufacturing PMI was less; the February
Philly Fed manufacturing index, January existing home sales and the January
leading economic indicators were all disappointments.
Overseas,
the February Japanese, EU and German flash manufacturing PMI’s moved into
contraction territory; on the other hand, the February EU and German flash
composite and services PMI’s came in better than projected.
Two
other headlines, both of which I covered in Thursday’s Morning Call: (1) the ECB
joins the rest of the global central banks moving toward easing monetary policy
and (2) the US/China trade talks continue, accompanied by more happy talk.
***overnight, the head
Chinese trade official will meet with Trump this afternoon. Hopes are that trade talks have progressed
far enough that the March 1 deadline for the imposition of new tariffs on Chinese
goods will be moved back.
Bottom line: as usual, I look
at that dataflow and wonder how some pundits can be upbeat about our
economy. Not that the US is going into recession. But it certainly appears that the rate of growth
is slowing.
I also look at
earnings reports and see the growing margin pressures, much of it do to rising
costs, and wonder why some pundits think that the corporate profit slowdown is
a one or two quarter phenomena.
The above is what
stagflation looks like, largely the courtesy of lousy monetary policy. Stagflation is not in my forecast; but the
odds seem to be rising.
The good news is that the
US/Chinese trade talks are apparently progressing toward some sort of
conclusion. I say ‘apparently’ because
we have few details. However, I can’t
believe that Trump would let this hype go on, setting himself up for a major
disappointment, if he didn’t think deal was in the making. The question is, will it address Chinese
industrial policy and IP theft in a meaningful way or will there be a lot of ‘further
studies’ needed but in the meantime China buys more soybeans and any new
tariffs will be delayed? To be sure, the
latter would be a plus for US growth near term; however, Trump has put the
economy through some unnecessary pain if that is all he gets.
The
pace of dividend cuts accelerated in February.
News on Stocks in Our Portfolios
Coca-Cola (NYSE:KO) declares $0.40/share
quarterly dividend, 2.6% increase from prior dividend of $0.39.
Economics
This Week’s Data
US
The
February flash composite PMI was 55.8 versus expectations of 54.4; the manufacturing
PMI was 53.7 versus 54.3; the services PMI was 56.2 versus 54.8.
January existing
home sales fell 1.2% versus estimates of a 1.0% increase.
January leading economic indicators
declined 0.1% versus forecasts of +0.1%.
International
Q4
German GDP was flat (no growth), in line.
Other
The
latest on Brexit.
What
I am reading today
Different kinds of
stupid.
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