The Morning Call
3/7/19
The
Market
Technical
The Averages
(DJIA 25673, S&P 2771) moved lower yesterday. My focus continues to be the standoff at
S&P 2800, with the S&P falling further from that level. However, it remains above the first minor support
level below 2800. Until that gets
successfully challenged, my assumption is that 2800 remains the line in the
sand for bulls and bears. Follow
through. But I add the that the Dow 100 DMA is crossing
below its 200 DMA---a technical negative.
And:
Volume declined;
breadth was weak.
The VIX was up 5
¾ %, ending above its prior low, having created a double bottom (bad for
stocks). However, it is still below both
MA’s; and until it successfully challenges its 200 DMA, it points to an upward
bias to equity prices.
The long bond was
up 3/8 %, remaining above the support level that it challenged on Friday. So, it is now in a trading range bounded by
the aforementioned support level and its recent (triple) top.
The dollar was
unchanged, finishing right on the upper boundary of the November to present
trading range. Its chart looks strong.
GLD was down slightly,
closing above a second minor support level and above both MA’s.
Bottom line: the
S&P continues to see saw across the 2800 resistance level. While its inability to hold above 2800 is a
negative, it has remains above the most minor support level. So, yesterday’s pin action can’t really be
characterized as negative. Directional follow through remains the most important
factor for this chart.
The price action in TLT, UUP and GLD was
inconsistent and mirrors the recent return of minor uncertainty reflected in stock
prices.
Fundamental
Headlines
Yesterday’s economic
data was mixed: weekly mortgage and purchase applications declined and the
December trade deficit was larger than anticipated. The February ADP private payroll report was a
bit confusing because the January reading was revised up substantially; it had
the effect of making the February number look terrible viz a viz the revised
January report (which the media focused on) but without giving credit for the major
increase from December to January (which the media chose to ignore).
On
the global front, the Organization for Economic Cooperation and Development
lowered its 2019 growth forecast for the globe and the EU.
The
Fed released its latest Beige Book which read pretty much as expected: slight
to moderate growth with the government shutdown having had a negative impact on
economic activity (that is somewhat surprising to me); and a tight labor market.
More:
***this morning, Draghi/ECB
announced that it would leave rates unchanged, continue its version of QE and institute
additional QE steps in September. That
makes it four for four central banks easing monetary policy. I repeat that, in my opinion, this new round
of QE will have the same results as other QE’s, i.e. none, but should keep
stocks on an upward trajectory.
In yesterday’s
Morning Call, I linked to report that Trump is rumored to be willing to make a
China deal that doesn’t include reforms in China’s industrial policy and IP
theft. Several experts weighed in during
the day.
More:
Bottom line: the
numbers continue their trend of poor reports from December and January will
some improvement in February’s results. That said, the OECD forecast (above) is
not that hopeful. On the other hand, the Fed Beige Book isn’t that negative. And the current nowcasts (below) for the first
quarter are mixed. Confused? Remember all of these reports are produced by
a bunch economists looking at models which contain formulas that tie themselves
in a granny knot. So, I don’t think any of these guys have a clue---just like
me. So at present, I have no reason to change my
forecast; and until it is clear that investors actually care one way or the
other, I am not sure why the dataflow will have much impact.
A bit more
important is the results of US/China trade negotiations. After weeks of happy talk, doubts are growing
on the shape of any agreement, especially regarding China’s industrial and IP
theft policies. I have no insight as to
the outcome nor how investors will react.
My opinion remains that (1) any agreement will likely be a short term
cyclical but (2) if it doesn’t deal effectively with those Chinese policies, it
will be a secular negative and it will likely devalue Trump’s negotiating skills
which will have effect on the behavior of any opponent in any future deal
whether economic or political.
Most important
is central bank (QE) policies. As long
as they are rushing to throw money at the Markets to avoid a hissy fit, the
Markets will likely continue to have an upward price bias---until, as and if,
they figure out that QE’s are doing nothing for the global economies but are
seriously distorting the pricing of risk.
News on Stocks in Our Portfolios
General Dynamics (NYSE:GD) declares $1.02/share
quarterly dividend, 9.7% increase from prior dividend of $0.93.
Economics
This Week’s Data
US
Weekly
jobless claims fell 3,000 versus estimates of a 5,000 decline.
Q4
productivity grew 1.9% versus forecasts of up 1.6%; unit labor costs rose 2.0%
versus consensus of +1.8%.
International
Q4 EU GDP grew 0.2%, in line.
Other
New
home sale prices rolling over.
Trucking
boom U turn.
Stockman
on the (defense) budget.
What
I am reading today
How
it looks when a spacecraft shoots an asteroid.
What happens to
your debt when you die?
Investment
policy is in your hands.
Thursday morning humor---click on
the second video.
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for Survival’s website (http://investingforsurvival.com/home)
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