The Morning Call
3/20/19
The
Market
Technical
The Averages
(DJIA 25887, S&P 2832) rested yesterday---not really that surprising given a
solid eight day run to the upside. S&P closed well above the 2800 as well as
the 2811/2815 resistance level, paving the way for a challenge of the indices’
all-time highs (26917/2942)
Volume rose and
breadth improved.
The VIX rose 3 ½
%, finishing back above the late February/early March double bottom, negating
last Friday’s break. Barring a follow
through to the upside, I view this as not being that significant.
The long bond was
off fractionally. It remains in the
upper tier of the trading range defined by a quad top and a double bottom. The chart remains reasonably strong.
The dollar declined
three cents, closing below the upper boundary of the November to present
trading range and below the lower boundary of a recently established very short
term uptrend for a second day, negating that trend. Nonetheless, the chart remains strong, ending
above both MA’s and within a short term uptrend.
GLD advanced,
finishing above both MA’s and in a short term uptrend.
Bottom line: the
S&P ended above 2800/2811/2815, leaving little visible resistance between its
current price and its all-time high.
TLT and GLD are
pointing at a weak economy/easy Fed, the latter likely being the reason equity investors
have been jiggy. However, the price
action in the dollar doesn’t exactly fit the weak economy/easy Fed scenario,
unless it is being viewed as a safety trade.
So, I remain confused about the messages being sent by our indicators.
Tuesday in the
charts.
Fundamental
Headlines
Yesterday’s
economic data releases were somewhat disappointing: month to date retail chain
store sales growth declined, just not as much as in the prior week; January
factory orders and orders, ex transportation failed to meet expectations.
Overseas,
January EU construction output was very poor while the March economic sentiment index was down but less than anticipated.
Aside
from their normal focus on an FOMC meeting, investors were treated again to the
erratic news flow on the US/China trade talks with (1) early reports from China
that the talks were not going that well (2) to be answered quickly by reports
that Lighthizer was headed for China because negotiations were so
positive.
The
production of money does not create wealth.
Nouriel
Roubini on the Fed.
Bottom
line: anyone who thinks he/she knows what is happening in the trade talks is most
likely self-delusional. I have said
repeatedly that I think Trump’s stated goal of changing Chinese industrial policies
and IP theft is the right thing to do long term for the US economy. So, I am cheering the process. But the Chinese have centuries of negotiating
experience and they have the luxury/patience of being able to look decades ahead
in accomplishing their goals. That is
why I am OK with (1) no deal or (2) a limited deal that will leave the parties
at odds; but fear (3) a deal that looks good on paper, will bring out the
champagne and cigars but will be meaningless in correcting Chinese industrial
policies and IP theft.
I
believe that the universal consensus is that the narrative coming out of the
FOMC will simply parrot the recent ‘patient’ guidance and that it won’t disappoint. If so, then the Fed ‘put’ will remain in
place. Aside from some major exogenous
event, I think that means that equities will maintain their positive bias; and
that only ends when either (1) inflation forces the Fed to tighten irrespective
of Market sensitivities or (2) the economy weakens further and the Fed eases to
no avail.
I
have long opined that normalization of Fed monetary policy would not damage the
economy but would cause severe heartburn in asset pricing. Here is a decent argument on why I could be
wrong---that severe heartburn in asset pricing could damage the economy. Which would be the ultimate irony: QE didn’t
help the economy but helped the Market so while QT wouldn’t hurt the economy,
it would hurt the Market which would hurt the economy.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales slowed their pace of decline versus the prior
week.
January
factory orders rose 0.1% versus expectations of up 0.3%; ex transportation,
they fell 0.2% versus estimates of +0.3%.
Weekly
mortgage applications were up 1.6% and purchase applications up 0.3%.
International
January
Japanese leading economic index came in at 95.9. in line.
February
UK inflation rose 0.5%, in line; PPI advanced 2.2% versus forecasts of up 2.3%;
the industrial order index was reported at 1.0 versus consensus of 2.0.
Other
The
latest on Brexit.
Why
the oil price rally has a limit.
The
cost of the dem’s new universal healthcare, green America, guaranteed income
and free college proposals.
A look at income
inequality.
The
rise of the dual economy.
Global
trade is declining.
What
I am reading today
Discovering the Oracle of
Delphi.
DNA research unravels Jack the
Ripper mystery.
The value of mistakes.
Maximizing your productivity.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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