Thursday, April 11, 2019

The Morning Call--The central bank 'put' is alive and well

The Morning Call


The Market

The Averages (DJIA 26157, S&P 2888) recovered from Tuesday’s decline, maintaining solid uptrends, including very short term uptrends.  So, I continue to believe that they will advance toward their all- time highs (26951/2942).  There are still negatives that may inhibit momentum---the pin action in the dollar and bonds as well as last Monday’s gap up open (that will likely be closed).

Volume was down; and breadth was again mixed---though the flow of funds indicator remains negative.

The VIX fell 6 7/8 %, finishing right on the (now) triple bottom but above the upper boundary of its very short term downtrend for a second day, negating that trend.  I don’t see that as particularly meaningful.

The long bond was up another ¼ %, maintaining a strong chart---in a very short term uptrend and above MA’s.  However, it has yet to close that gap open of three Friday’s ago. More downside would not be surprising.

The dollar declined 1/8 %.  It remains in a solid uptrend.  The only thing I can see wrong with this chart is that it needs to trade meaningfully above its prior high.

GLD was up another 3/8 %, closing last Thursday’s gap down open.  While it is in an uptrend, it continues to develop a head and shoulders pattern. 

Bottom line: the upward momentum in the indices continues which I believe will take them to their prior all-time highs.  However, there is enough negatives coming from other indicators (mixed signals from the dollar [strong economy], the long bond [weak economy] and gold [confused] plus Monday’s gap up open) to create some doubt about the strength of any upward momentum.
            Wednesday in the charts.



            Yesterday’s dataflow was just slightly positive: weekly mortgage applications were down but purchase applications were up, March CPI was a bit higher than expected, but core inflation was less and the March budget deficit was less than anticipated.

            Overseas, the numbers were also marginally better: February Japanese machinery orders rose less than forecast while March PPI was hotter than consensus; February UK GDP, construction spending and industrial production were above projections; March Chinese auto sales remained in an abysmal downtrend.

            Q1 GDP growth now-forecast pick up a little but still show deceleration.

            Only a small chance of recession before April 2020.

The Fed released the minutes of the latest FOMC meeting, the bottom line which was an ever so slightly more hawkish tone.  Specifically, in discussing future actions by the Fed (1) most FOMC participants agreed that it would likely do nothing, (2) some thought that there may be a need to raise rates, (3) but no one believed there is a reason to lower them.  The gory details:

            As I noted in yesterday’s Morning Call, the ECB met and left rates and its bond buying program intact.  In Draghi’s following news conference, he made another ‘whatever it takes’ statement---meaning don’t expect any tightening from these guys any time soon.

            The insolvent thinking of central bankers.

            ***overnight, the EU/UK agreed to a six month extension of the Brexit deadline.

            Bottom line: in what could have been and big headline day, the net result was, not surprisingly, the confirmation of the central bank ‘put’ by the ECB and the Fed.   As long as it is there and investor make their portfolio decisions largely dependent on that ‘put’ (operative phrase), my assumption is that stock prices are going higher.  However, it will not deter me from taking money off the table if one of our stocks trades into its Sell Half Range.
    News on Stocks in Our Portfolios
            Caterpillar (NYSE:CAT) declares $0.86/share quarterly dividend, in line with previous.


   This Week’s Data


            The March budget deficit was $147 billion versus expectations of $180 billion.

            March PPI came in +0.6% versus estimates of +0.3%; core PPI was +0.3% versus +0.2%.

            Weekly jobless claims rose 8,000 versus forecasts of up 23,000.


            March Chinese CPI fell 0.4% versus consensus of -0.2%; PPI was up 0.4%, in line.

            March German CPI was up 0.5%, in line.


            March Chinese auto sales down 12% after 18.5% drop in February and a 4% decline in January.

What I am reading today

            First ever image of a black hole.

            North Korea resumes is saber rattling.

            What’s wrong with a free college education?

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