Friday, October 25, 2019

The Morning Call--Positives outweigh the negatives; but stocks are stuck

The Morning Call


The Market

The Averages (26805, 3010) turned in a mixed performance yesterday (Dow down, S&P up) on slightly higher volume  and poor breadth.  The VIX fell another 2 1/8 % ( a bigger drop than I would expect on a mixed day---but that is a plus for stocks).  The indices ended solidly above both MA’s and in uptrends across all timeframes.  

Three somewhat worrisome details are (1) the indices have successfully challenged the lower boundaries of their very short term uptrends, (2) they have now made another lower high [4th to 7th depending on who is counting] and (3) 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. 

            Where is the buyback beef?

TLT declined ¼%, but remained above its recent low and finishing above both MA’s and  in uptrends across all time frames. 

Gold was up ¾%, breaking above the upper boundary its pennant formation; if it remains there through the close today, my assumption is that it has made a short term bottom and its price is headed higher.

The dollar rose 3/8%, continuing its bounce off its 100 DMA and the lower boundary of its short term uptrend. 

The liquidity problem keeps getting worse.

GLD, TLT and UUP were all in safety trade mode.  Let’s see if it lasts.

            Thursday in the charts.



            Yesterday’s data was weighed to the negative: the October Kansas City Fed manufacturing index and the October flash manufacturing PMI were better than anticipated; September new home sales fell but were in line (primary indicator), so was the October flash services PMI; weekly jobless claims, September durable goods orders (primary indicator) and the October flash composite PMI were below estimates

            The global stats were worse: the October Japanese, German and EU flash manufacturing, services and composite PMI’s were less than forecasts as was October EU consumer confidence.

            Latest on Brexit.
            Bottom line: the bad news in yesterday’s major events were (1) Brexit is getting more uncertain, not less [see above], (2) Pence slapping around the Chinese and (3) the dataflow is getting worse.  The good news is (1) the continuing trend of positive earnings beats [though there have been disappointments] and (2) NotQE is in overdrive.

            ***overnight, China’s response to Pence.

            There is no question in my mind that the positives outweighed the negatives with this caveat: while the Market seems unconcerned about the liquidity problems in global financial system which are a major driver of NotQE, that doesn’t mean this situation shouldn’t be worried about or won’t deteriorate to the point where it becomes an investor concern.

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.
            Decompression in the leveraged loan market is a sign that revaluation could be coming,

    News on Stocks in Our Portfolios
T. Rowe Price (NASDAQ:TROW): Q3 Non-GAAP EPS of $2.13 beats by $0.16; GAAP EPS of $2.23 beats by $0.23.
Revenue of $1.43B (+2.9% Y/Y) misses by $10M.

V.F. Corp (NYSE:VFC): Q2 Non-GAAP EPS of $1.26 misses by $0.04; GAAP EPS of $1.61 beats by $0.30.
Revenue of $3.39B (+5.3% Y/Y) misses by $30M.

V.F. Corp (NYSE:VFC) declares $0.48/share quarterly dividend, 11.6% increase from prior dividend of $0.43.


   This Week’s Data


            September new home sales fell 0.7%, in line.

            The October flash manufacturing PMI came in at 51.5 versus estimates of 50.7; the services PMI was 51.0, in line; the composite PMI was 51.2 versus 51.5.

            The October Kansas City Fed manufacturing index was reported at 8 versus expectations of 4.


            October German consumer confidence came in at 9.6 versus forecasts of 9.8; business conditions were 94.6 versus 94.5.


            Economics and cognitive dissonance.

            How the fix the student loan mess.

            A progressive’s view of what is happening in Chile.

What I am reading today

            2019 microphotography competition.

            The dinosaur killing asteroid acidified the oceans.

            Another low for the snowflake generation.

            New and improved ways of giving away your money.

            Ten questions to ask about Trump’s withdrawal from Syria (today’s must read).

            Trump may be reversing himself on Syrian withdrawal.

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