The Morning Call
3/21/19
The
Market
Technical
The Averages
(DJIA 25745, S&P 2824) had a roller coaster day, finishing down. Still the S&P closed well above the 2800
as well as the 2811/2815 former resistance levels; so, technically, at this
point, I see no reason to doubt further upside in prices.
Volume rose and
breadth was mixed.
The VIX advanced
2 ½ %, finishing back above the late February/early March double bottom,
negating last Friday’s break. While this
did represent follow through from Tuesday’s advance, I remain in doubt that
there has been a directional change---just like the S&P.
The long bond spiked
1% on volume---largely due to the FOMC’s dovish statement (more below). It blew through the quad top; if it remains
there through the close next Monday, it will reestablish a very short term
uptrend. Clearly, the chart is on the
verge of becoming much stronger.
***overnight,
The dollar declined
½ % on volume, closing below the upper boundary of the November to present
trading range and right on its 100 DMA.
A break below that MA would signal a weakening in the technical underpinnings
of UUP.
GLD was up 5/8 %
on volume, finishing above both MA’s, above the most recent lower high (signifying
a possible improvement in trend) and in a short term uptrend.
Bottom line: the
S&P ended above 2800/2811/2815; so, there remains little visible resistance
between its current price and its all-time high. However, while stocks initially rallied
on the Fed news, they subsequently sold off---not only contrary to the thesis
that a dovish Fed is good for stocks but also a bit out of line with TLT, GLD
and UUP. I end the day confused.
TLT, UUP and GLD
acted exactly as I would have expected on a super dovish statement from the
FOMC. Clearly, these investors believe
that an easier than anticipated Fed is good (TLT, GLD) or bad (UUP).
Wednesday
in the charts.
Fundamental
Headlines
Only
one US stat reported yesterday: weekly mortgage and purchase applications were
up.
Overseas,
the January Japanese leading economic index was in line; February UK inflation
was in line, PPI was less than projected and industrial orders were disappointing.
It
was also another day in the topsy turvy world of trade negotiations---Trump
says tariffs on Chinese goods could remain for a long time.
All
of this was dwarfed by the news following the FOMC meeting which basically
moved stated Fed policy in line with the dovish, ‘patient’ narrative from
various Fed members since January, to wit:
(1)
rates were left unchanged, are expected to remain so
through the end of 2019 with only one rate increase expected in 2020 and one in
2021,
(2)
the balance sheet run off will begin to slow in May and
will end in September,
(3)
its outlook for economic growth was lowered and unemployment
was raised, i.e. the economy is not quite as rosy as previously portrayed.
In sum, the Fed
out doved itself. My question is, why? The Market wasn’t expecting the extent of the
move toward ease. So, there was no
reason to pacify it as there was in January.
On the other hand, given its downgrade in the economic outlook (however
small it may have been), I wonder if it is finally starting to acknowledge that
its forecast has been way too rosy.
Certainly, the dramatic flattening of the yield curve suggests that bond
investors may think so (and you know that I have always had more respect for the
bond market’s versus the stock market’s ability to discount future economic events). However, a selloff in stock prices on fears
of recession would fit that scenario. Of
course, we need more data and more than a one day move in bond/stock prices to
give any credence to that notion.
FOMC
projections.
Fed
hubris.
***overnight,
the Bank of England left rates unchanged and QT on hold. The narrative in the subsequent statement
focused heavily on Brexit---as you might expect.
Bottom
line: given equity investor’s persistent jigginess to a dovish Fed, it is
somewhat mystifying to me that stocks would sell off on a more dovish that
expected FOMC policy statement. However,
as in noted above, this is one day’s reaction which borders on being
meaningless. Follow through will tell
the tale.
P.S. I have long maintained that the Fed has
never, ever in its history managed the successful transition from easy to
normal monetary policy. This analyst
believes yesterday’s dovish move locks in that scenario again.
News on Stocks in Our Portfolios
Revenue of $4.2B (+8.2% Y/Y) misses by $10M.
Economics
This Week’s Data
US
Weekly
jobless claims were 221,000 versus expectations of 225,000
The
March Philadelphia Fed manufacturing index came in at 13.7 versus estimates of
4.5.
International
February
UK retail sales rose 0.4% versus projections of -0.4%; ex gasoline, they
increased 0.2% versus consensus of -0.4%.
Other
Just
stop spending.
Whose
fault is the Brexit mess?
China’s
Belt and Road Initiative.
https://www.nakedcapitalism.com/2019/03/chinas-belt-and-road-initiative-vs-washington-consensus.html
Chinese
corporations defaulting on loans at a record level.
What
I am reading today
How archeologists found
Troy.
Quote of the day.
Bonus quote of the day.
The state is not a transcendental
being.
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