The Morning Call
10/23/19
The
Market
Technical
The Averages (26788,
2995) sold off yesterday on higher volume (not good when the volume goes up on
down days) and poor breadth. The VIX was
up 3 ¼ %, but its pin action still holds little informational value. The indices ended solidly above both MA’s and
in uptrends across all timeframes. Two somewhat
worrisome details are (1) they have now made another lower high [4th
to 7th depending on who is counting] and (2) short term, the October
11th gap up opens need to be closed. My assumption remains that momentum is to the
upside and that the all-time highs (27398, 3027) will be challenged; however, the
more follow through to the downside, the weaker my conviction gets.
Gold was up ¼ %,
which it needed to do to simply remain on the lower boundary of the trend of
rising higher lows. It also closed above
the low set 9/10.
TLT rose ½ %,
narrowly avoiding a challenge of its 100 DMA.
It finished in uptrends across all time frames.
Who owns those
negative yielding bonds? And why?
The dollar was up ¼%,
bouncing off its 100 DMA and above the lower boundary of its short term
uptrend.
The dollar shortage
continues.
China is having
its own liquidity problems.
GLD, TLT and UUP
were all in safety trade mode. Let’s see
if it lasts.
Monday in the
charts.
Fundamental
Headlines
Yesterday’s US
data was mixed: the October Richmond Fed manufacturing index was well above
estimates, month to date retail chain store sales were less bad than in
the prior week and September existing home sales (primary indicator) was very
disappointing.
Update on US business
cycle risk report.
Overseas,
the August Japanese all industry index and September German PPI were better than
forecasts while the September Japanese trade balance, the October UK industrial
orders and business optimism were lower.
The
only major macroeconomic news yesterday was the soap opera that is Brexit---Parliament
approved it but voted to delay it. As an
aside, I haven’t seen any meaningful analysis of the cost/benefits of Brexit
deal (although I was wholeheartedly in favor of Great Britain reclaiming its
sovereignty from the noxious EU bureaucracy).
So, I am not sure about any positive economic impact to the global (US)
economy from a Brexit. In my mind, its resolution will simply carry
the psychological benefit of removing an uncertainty. However, I have seen multiple doomsday estimates
of a no deal Brexit.
Here is the
latest.
Bottom line: the
main news lay in the earnings reports that are now coming fast and furious. So far, it looks like reported results are
ahead of expectations---though remember that analysts mark down their forecasts
ahead of earnings season in order to allow companies to ‘beat’ estimates. Add better earnings to the free money that
the Fed is handing out and the case for higher stock prices is there.
That
said, short term, the most bothersome factor for me right now is the technical
picture; that is, the Averages inability to make a new high. Longer term, valuations in major sectors of
the Market are extraordinarily expensive; and some mean reversion seems inevitable. I want to take some profits in those overvalued
sectors and use it to buy stocks that have been beaten up on any Market dip.
A great explanation
of how QE leads to the misallocation of
assets, the loss of productivity and wage growth. (must read).
News on Stocks in Our Portfolios
Canadian National Railway (NYSE:CNI): Q3 Non-GAAP EPS of
C$1.66 beats by C$0.04; GAAP EPS of C$1.66 beats
by C$0.05.
Revenue of C$3.83B (+4.1% Y/Y) misses by C$40M.
Canadian National Railway (NYSE:CNI) declares CAD 0.5375/share quarterly dividend,
in line with previous.
Revenue of $19.98B (-20.6% Y/Y) in-line.
General Dynamics (NYSE:GD): Q3 Non-GAAP EPS of
$3.14 beats by $0.08; GAAP EPS of $3.14 beats
by $0.09.
Revenue of $9.76B (+7.4% Y/Y) beats by $10M.
Caterpillar (NYSE:CAT): Q3 Non-GAAP EPS of
$2.66 misses by $0.24; GAAP EPS of $2.66 misses
by $0.20.
Revenue of $12.76B (-5.6% Y/Y) misses by $730M.
Economics
This Week’s Data
US
Month
to date retail chain store sales declined less rapidly than in the prior week.
September
existing home sales fell 2.2% versus forecasts of -0.7%.
The
October Richmond Fed manufacturing index came in at 8 versus consensus of -14.
Weekly mortgage applications
fell 11.9% while purchase applications dropped 3.6%.
International
Other
China
increases infrastructure spending to stave off recession.
What
I am reading today
The
rise and fall of the Roman Republic (part 1).
Can
exercise help prevent dementia?
No
inflation. Tell my landlord.
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