Friday, November 8, 2019

The Morning Call--Who's on first?

The Morning Call


The Market

The Averages (27670, 30785) spiked yesterday on higher volume and strong breadth---though this indicator has entered overbought territory. The VIX was up 7/8%---the third time of late that it has been up on a big up day in stocks, suggesting stocks are not as overbought as indicated by breadth. 

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.
The case against a melt up (must read):

TLT got clocked 1 7/8 % on heavy volume, pushing below its 9/13 low and closing below its 100 DMA for a third day, reverting to resistance.  It is also a short hair away from the lower boundary of its very short term uptrend and only a couple of points from its 200 DMA. 

The dollar was up ¼%, maintaining its upward momentum. 

Like bonds, gold was pounded down 1 ½ %; and like bonds, on big volume.  In the process, it finished below its 100 DMA (now support; if it remains there through the close on Monday, it will revert to resistance).  Unlike bonds it is still well above its 200 DMA and the lower boundary of it very short term uptrend.

Yesterday, the above three indicators took a big step in confirming that they are climbing on board with equity investors in the belief that a stronger economy is dead ahead.  The only problem is that so far, the numbers simply aren’t confirming that scenario.  Of course, Markets are forward looking; so, they apparently expect much better data ahead.

That said, keep in mind that this is the time of year when investors tend to look at the world through rose colored glasses.

Thursday in the charts.


There were two minor indicators released yesterday that showed mixed results: September consumer credit grew less than anticipated while weekly jobless claims fell more than expected.
            Where is that pesky recession?

            Student and auto loans continue to hit record highs.

            Overseas, September German industrial production was less than estimates but its  October construction PMI was better.

            Politics aside, the major news item yesterday was the on again happy talk about an agreement on a US/China Phase One trade pact.  Who knows how much substance there is to them?  As you know, my opinion is that the most likely outcome won’t have that big an impact on the US long term secular economic growth rate anyway.  Of course, I could be wrong.  The Chinese could realize the error of their ways and stop their unfair trade practices.  (yeah, right)

            ***overnight, it is the US’s turn to pour cold water on  Phase One deal.

Bottom line:  in the meantime, what I know for certain is that the global central banks are pouring liquidity into the financial system; and I know that for the last decade, that same policy has had little impact on the global economy but a substantial effect on the securities markets.  So, in my opinion, easy central bank monetary policy will be the  primary driver of stock prices---until investors realize how destructive monetary policy has been. 

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.

    News on Stocks in Our Portfolios


   This Week’s Data


            September consumer credit grew $9.5 billion versus consensus of up $15.0 billion.


            September Japanese cash earnings were up 0.8% versus estimates of +0.4%; household spending was  up 5.5% versus +3.8%; leading economic indicators were 92.9 versus 92.3.

            The September German trade surplus was E21.1 billion versus expectations of E17.2 billion.

            The October Chinese trade surplus was $42.8 billion versus forecasts of $40.8 billion.


What I am reading today

            The lottery ticket mentality.

            How to spend your money---according to science.

            Deep sleep gives your brain a deep clean,

            Breaking open a black hole.

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