The Morning Call
11/6/19
The
Market
Technical
The Averages (27492,
3074) turned in a mixed performance (Dow up, S&P down) yesterday. Volume
rose while breadth was mixed. The VIX was up 2 1/8%, further relieving a
somewhat oversold condition and giving equities more upside before getting
overbought.
My assumption
remains that momentum is to the upside; but there are still some
negatives: (1) October 11th
gap up opens need to be closed, (2) both had gap up opens on Monday, and (3) breadth
is nearer to overbought.
BofA joins the ‘melt
up’ chorus.
And Ed Yardini is
worried about it.
Is buying stocks
at an all-time high a good idea?
TLT fell 1 1/8 %
on heavy volume, closing below its 100 DMA (now support; if it remains there
through the close on Thursday, it will revert to resistance) and very near its
9/13 low. The dollar was up 3/8 % also
on heavy volume, maintaining its upward momentum. Gold declined 1 5/8%, also on volume, finishing
below the tip of that pennant formation.
TLT, UUP and GLD
remain at potentially critical junctures.
We know the Averages are telling us to tip toe through the tulips; and
yesterday’s pin action in other indicators (in particular the dollar) suggest
that their investors may be following suit.
However, TLT and GLD have not successfully
challenged levels that would indicate a change in sentiment. But their performance yesterday on heavy
volume could be a precursor to such an event.
Tuesday in the
charts.
Fundamental
Headlines
Yesterday’s data
was mixed. Month to date retail
chain store sales and the October ISM nonmanufacturing index were better than
expected; the September job openings (JOLTS) report was in line; the October services and composite PMI’s were
below estimates.
Overseas, the
numbers were slightly upbeat. The
October Chinese Caixin composite PMI and the October UK services PMI were ahead
of forecasts; the September EU PPI was in line; the October Chinese Caixin services
PMI was below consensus.
Trade continues to
command the nonpolitical headlines. But
the changing narrative makes my hair hurt.
Yesterday, they grew more optimistic as the storyline shifted to the possible
shape and likelihood of a Phase One agreement: the Chinese buy more agricultural
products (which they are dire need of anyway) and Trump backs off tariffs (how far
is unclear). But overnight, the Chinese
poured cold water on it. As I said
before, this is likely all part of the negotiating dance; but it leaves the
level of uncertainty somewhat elevated.
I can’t let a day go by without focusing on
what I believe is driving stock prices.
(1)
The simplistic Fed narrative.
(2) Shades of
2007/2008.
(3)
China cuts interest rates.
Bottom line: OK, maybe
we are getting closer to some kind of trade deal. Although, it apparently will not address the
issues the prompted the trade war in the first place. Meaning that it would undoubtedly improve the
global economic sentiment and likely our own near term global economic outlook. However, longer term, the principal unfair Chinese
industrial and IP theft policies aren’t being addressed; and I continue to believe
that they never will be.
But couple a trade
deal with a third quarter earnings season that continues to come in ahead of
expectations, the Market now in the most favorable trading period of the year
and a scramble by the global central banks to see who can out ease who and
there are the ingredients for a year-end rally.
That said, I still
believe that huge segments of the stock market are grossly overvalued and that
any further advance will only make them more so. Caveat emptor.
More on
valuations.
October dividends by
the numbers.
The permaeverything
approach.
Realistic
investment results.
Investing is hard,
even for the most successful.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month to date
retail chain store sales grew faster than in the prior week.
The
September job openings (JOLTS) reported 7.02 million openings, in line.
The October services PMI came in at
50.6 versus estimates of 51.0; the composite PMI was 50.9 versus 51.2.
The October ISM nonmanufacturing
index was 54.7 versus consensus of 53.5.
Weekly mortgage
applications fell 0.1% while purchase applications were down 2.5%.
Preliminary Q3
nonfarm productivity fell 0.3% (ooops) versus an anticipated rise of 0.9%; unit
labor costs advanced 3.6% versus +2.2%.
International
The October
Japanese services PMI came in at 49.7 versus forecasts of 50.3; the composite
PMI was 49.1 versus 49.8.
The October
German services PMI was reported at 51.6 versus expectations of 51.2; the
composite PMI was 48.9 versus 48.6.
The October EU
services PMI was 52.2 versus projections of 51.8; the composite PMI was 50.6
versus 50.2.
September EU
retail sales were up 0.1%, in line.
Other
A
slowdown in the auto industry is hurting global growth.
What
I am reading today
The Gunpowder Plot of 1605.
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