The Morning Call
11/5/19
The
Market
Technical
The Averages (27462,
3078) had another good day on Monday, continuing the trend of improving upside
momentum (1) the Dow’s advance puts in back in sync with the S&P and (2)
the VIX was up on an up Dow day, relieving a somewhat oversold condition and
giving equities more upside before getting overbought. Volume was down and breadth improved---though
it continues to get more 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 yesterday, and (3) breadth
is nearer to overbought.
The risk of a melt
up is real.
TLT fell 1 3/8, making
a third lower high and closing right on its 100 DMA---again threatening to
break its upward momentum. The dollar
was up 3/8 %, bouncing off and the lower boundary of its short term uptrend,
voiding last Thursday’s break---clearly a plus.
Gold declined ¼%, but remained above the upper boundary of that pennant
formation. However, I am still uncertain
about the strength of the directional move following the breakout from the
tip.
TLT, UUP and GLD
remain at potentially critical junctures.
We know the Averages are telling us to tip toe through the tulips. But the rest of the indicators are near levels
that, if successfully challenged, would mark a directional change. How they follow through should tell us a good
deal about underlying investor sentiment and economic outlook.
Monday in the
charts.
Fundamental
Headlines
Yesterday’s stats
were mixed: September factory orders
fell more than forecast while the October NY ISM came in ahead of expectations.
Overseas, the data
was upbeat: the final October German and EU manufacturing PMI’s as well the
final October UK construction PMI were better than anticipated.
There were several
headlines on trade out of China, none positive and directly contradictory to
the those out of the White House:
(1 ) Chinese media
talks down Phase One deal.
(2) plus, rumors
(operative word) are circulating that Chinese will again raise Phase One demands
at the last minute.
***overnight, another rumor is adrift that the
US is considering rolling back the tariffs imposed in September.
The other item
that I thought worth focusing on is that NotQE has now pushed the Fed’s balance
sheet back above $4 trillion.
Bottom line: the
third quarter earnings season continues to come in ahead of expectations and
the Market is now in the most favorable trading period of the year. More importantly, the Fed is pouring money
into the financial system like a California firefighter.
On the other hand,
the headlines on the US/China trade deal are so confusing that it should give
investors pause. To be sure, this is all
part of the negotiating process. But, I have
never thought that there would be a deal, unless it was a plus for the Chinese but
gave the appearance of a Trump win. Here is where the impeachment process comes
into play; that is, does Trump think that he needs positive trade headlines to
offset the DC sh*t show?
I still believe
that huge segments of the stock market are grossly overvalued; and that any
further advance will only make them more so.
So, while it makes sense that equities could trade higher through year
end, they will do it without me. Indeed,
if any of my stocks get pushed into their
Sell Half Range, I will act accordingly.
Update on
valuations.
Navigating a
volatile market.
JP Morgan reducing its own
risk exposure.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
September
factory orders fell 0.6% versus estimates of -0.5%.
October
NY ISM came in 47.7 versus consensus of 45.8.
The September
trade deficit was $52.5 billion, in line.
International
The
October Chinese Caixin services PMI was 51.1 versus expectations of 52.8; the
composite PMI was 52.0 versus 51.1.
The
October UK services PMI was 50.0 versus forecasts of 39.2.
The
September EU PPI was +0.1%, in line.
Other
Framing
lumber prices up YoY.
Time
to reevaluate Dodd Frank?
The
problem with economics.
Business
investment since the passage of the Trump tax cut.
US
announces new project to compete with the Chinese Belt and Road infrastructure
plan.
What
I am reading today
Higher prescription drug costs are
not due to price but to age.
Three
signs that you are on track for early retirement.
No
safe spaces.
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