Thursday, November 21, 2019

The Morning Call--Trade talk ping pong

The Morning Call


The Market

The Averages (27821, 3108) had their worst day in almost two months, though. In absolute terms, their decline was not all that much especially on a day when we got lousy trade headlines.  Breadth was weak again.  But I have been noting that the Market was getting very overbought condition---for how long?  Oddly, the VIX was down which suggests that investors are not that concerned.  In the short term, more downside should be expected.  Volume rose again which is the opposite of what you want in a selloff.  Still, momentum remains to the upside though those nagging October 11th gap up opens need to be closed.

The bond market was rose another 1 %, finishing above its 100 DMA (now resistance; if it remains there through the close on Friday, it will revert to support).  If the challenge is successful, the downward momentum in TLT will clearly be over.  The only remaining negative is that it is still in a very short term trend of lower highs.

The dollar was unchanged, holding right on the lower boundary of its short term uptrend.

Gold advanced seven cents, and is that much nearer to challenging both the upper boundary of its very short term uptrend and its 100 DMA---which if successful would halt its current downward momentum and point to a weaker economy.

The UUP, TLT and GLD are all nearing or in the process of challenging key support/resistance levels which if successful would not only mark a change in momentum but also imply a reversal in economic perceptions.  Were TLT and GLD to successfully challenge the aforementioned resistance levels and the dollar hold its uptrend, it would suggest a flight to safety.  If the dollar breaks down, it would imply a weaker economy.

            Wednesday in the charts.



There was only one minor datapoint released yesterday.  Weekly mortgage applications were down but purchase applications were up.

The latest business cycle  risk report.
            Overseas, the October Japanese trade surplus and October German PPI were both disappointing.

The Fed released the minutes of its latest FOMC meeting, the bottom line of which didn’t change from the narrative that we have heard of late: no more rate cuts, but no increases even if the economy starts to heat up and NotQE until at least April. 

***overnight, ECB semi mea culpa.

On trade:

(1)   the house joined the senate in supporting the Hong Kong protestors which surely will not make a trade deal any easier.

Here is a pessimist’s view of congressional support for the protestors.

(2 ) White House sources suggest that there may not be a Phase one deal by                          December.

                                I thought that the following quote from Zerohedge adequately reflects the state of US/Chinese trade negotiations;

‘The barrage of news, facts, rumor, innuendo, speculation and outright lies, started around noon on Wednesday, when Reuters reported that the trade deal could be delayed into 2020, while Global Times' EIC sniped periodically from his twitter account warning that China is ready for full-blown trade war. Futures then staged their latest miraculous comeback, gravitating around the "gamma gravity" of S&P 3,100 before the House passed the Bill of support for Hong Kong protestors just after 5pm, once again spooking futures, especially after Bloomberg reported that Trump would likely sign the bill. Futures then slid to session lows again before rebounding on a Bloomberg report that China's top trade negotiator Liu He was "cautiously optimistic" if "confused" at a dinner on Wednesday, even if Bloomberg failed to point out that due to the magic of time zones, the dinner took place some 12 hours earlier. A few hours later, around 2am, futures pushed to session highs after China's commerce ministry said that China will "strive to reach an initial trade agreement" with the United States as both sides keep communication channels open. The good mood lasted for about an hour, when senior Chinese diplomat Wawng Yi said China "resolutely opposes" US lawmakers passing the Hong Kong human rights bill. Then, pessimism quickly turned to optimism just after 5am when the WSJ reported that China invited US trade negotiators to Beijing for further talks. The burst higher quickly faded when algos read a little deeper into the article to find that the phone call invitation took place last week, long before all the latest turmoil took place. As the WSJ added "US negotiators said they would be willing to meet in person, but would be reluctant travel all the way to China, unless they make it clear that it would make commitments on IP protection, forced technology transfers and ag purchases." Needless to say, there was no trip.

                                ***this just in, sources say US may delay implementation of December 15 tariff increases even if no deal has been reached.

                        (3 ) the risk of a trade war with the EU remain.

            Bottom line: in my opinion, the calm with which investors took the lousy trade news yesterday is likely a function of the prevailing sentiment that the Fed has their back (i.e. will continue to pursue NotQE with abandon).  As long as NotQE is in play, I believe that stocks will continue to work their way higher, valuations be damned.

            Valuations from Dr. Ed.

More on valuations.

    News on Stocks in Our Portfolios


   This Week’s Data


            Weekly jobless claims rose 3,000 versus expectations of a 7,000 decline.

            The November Philadelphia Fed manufacturing index came in at +3 versus estimates of -7.



            Modern Monetary Theory comes to congress.

            Legendary trader turns bearish on oil.

What I am reading today

            The real story behind Ford vs Ferrari

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