The Averages (26833, 3004) inched higher yesterday on lower volume (not good when the volume goes down on up days) and mixed breadth. The VIX fell 3 1/8 % ( bigger drop than I would expect on a slight up 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) they have broken below very short term uptrends, (2) 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 left it within a narrowing range (about a one point difference) defined by the developing pennant formation. It also closed above the low set 9/10.
TLT rose 1/8 %, finishing above both MA’s and in uptrends across all time frames.
The dollar was off one cent, leaving it above its 100 DMA and the lower boundary of its short term uptrend.
The Fed again expands its liquidity provisions.
This kind of intervention can’t be good (except maybe for stocks short term). Must read.
Using the dollar as an economic weapon. This is a decent review of the subject, but it in no way leads to the author’ conclusion---‘the stage would be set for a devastating conflict’.
GLD, TLT and UUP were all in safety trade mode. Let’s see if it lasts.
Wednesday in the charts.
One minor datapoint was released yesterday: weekly mortgage and purchase applications fell.
Where did all the stimulus go?
Overseas, there also only one stat: October EU consumer confidence was down more than anticipated.
It was another day of slow news except for earnings reports. I did find an update on Brexit stands.
***overnight, Chinese ag purchases are a nothing burger.
Bottom line: earnings reports were again the major headlines. They continue to be somewhat better than expected; and investors are giving a pass to those who disappoint (think CAT).
The other development impacting the Market is the new NotQE (see linked articles above). The Fed is shoveling liquidity into the financial system; and if history is a guide, that should mean higher stock prices. That said, as I have noted the last couple of days, the Averages have been unable make a new high in the face of this new liquidity impulse. That is a potential negative for the Market; although it makes no sense to assume that the Fed/Market co-dependency is breaking down until there is much stronger evidence than we have now.
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.
In yesterday’s Morning Call, I linked to an article explaining how QE led to the misallocation of assets, the loss of productivity and wage growth. Here is an example of that misallocation of assets.
News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW): Q3 Non-GAAP EPS of $4.26 misses by $0.14; GAAP EPS of $4.25 misses by $0.08.
Microsoft (NASDAQ:MSFT): Q1 GAAP EPS of $1.38 beats by $0.14.
3M (NYSE:MMM): Q3 Non-GAAP EPS of $2.58 beats by $0.08; GAAP EPS of $2.72 beats by $0.20.
Apple (NASDAQ:AAPL) declares $0.57/share quarterly dividend, in line with previous.
This Week’s Data
September durable goods orders fell 1.2% versus consensus of -0.8%; ex transportation they were -0.3% versus -0.2%.
Weekly jobless claims declined 1,000 versus projections of down 8,000.
October EU consumer confidence was reported at -7.6 versus estimates of -6.7.
The October Japanese flash manufacturing PMI was 48.5 versus forecasts of 48.8; the services PMI was 50.3 versus 51; the composite PMI was 49.8 versus 50.2. Its August leading economic indicators were 91.9 versus 91.7.
The October German flash manufacturing PMI was 41.9 versus 42; the services PMI was 51.2 versus 52.0; the composite PMI was 48.6 versus 48.8.
The October EU flash manufacturing PMI was 45.7 versus 46; the services PMI was 51.8 versus 51.9; the composite PMI was 50.2 versus 50.3.
September architectural billings were less bad than in August.
What I am reading today
The rise and fall of the Roman republic (part 2).
The changing American diet.
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