Wednesday, December 4, 2019

The Morning Call--All that was needed was a trigger

The Morning Call


The Market

The Averages (27502, 3092) took another drubbing yesterday, creating huge gap down opens and closing below the lower boundaries of their very short term uptrends for a second day negating those trends.  Breadth deteriorated and is rapidly working off the overbought condition.  Volume rose.  We now have two gap opens---one down and one up that need to the filled, suggesting a range bound Market over the short term.   In the background, we need to remain aware of the positive seasonal factor.

After a big gap down open and closing below its 100 DMA on Monday, the long bond roared back (up 2 ½%) yesterday, creating a huge gap up open and regaining its 100 DMA negating Monday’s break.    

The latest from Jeffrey Gundlach.

The dollar was down 1/8%, ending below the lower boundary of its short term uptrend for a second day; if it remains there through the close today, it will reset to a short term trading range. 

Gold spiked 1% on major volume, also creating a gap up open.  While it remained in very short term and short term uptrends and above its 200 DMA, it is continued to trade below its 100 DMA.  On the other hand, it appears to have broken the trend in lower highs.

The lousy trade headlines only got worse yesterday; but the pin action provided some clarity.  The large up moves in TLT and GLD are in line with the poor equity market performance.  However, the dollar barely moved which hints more at a safety trade than a bad economy.   Nonetheless, clarity aside, those gap opens need to be closed.

            Tuesday in the charts.



It was a slow day for data.  In the US, there was only one minor stat released.  Month to date retail chain sales grew much faster than in the prior week, likely a function of Black Friday.

Overseas, the numbers continued Monday’s positive trend. October EU PPI and the November UK construction PMI were better than anticipated.

            Most of the headlines yesterday were on trade and were made before the Market open---which I covered in Tuesday’s Morning Call. 
            Bottom line: the pin action of the last two days is ostensively tied to the lousy trade headlines.  However, as I have been discussing in the technical section, the Market internals (stocks well overbought and the VIX reflecting a high level of investor complacency)  were set up to push prices lower.  All it needed was a push from some negative development; and that is what it got. 

            On a fundamental basis, my opinion all along has been that (1) there would not likely be any kind of trade deal before the 2020 election that would address the main causes for the current trade spat, if then.  So, all the gnashing of teeth and renting of hair over the lack of a trade deal to me is not the force that will take stocks down in any major way, (2) as long as the Fed pumps liquidity into the financial system, markets will continue to behave as they have for the last decade and until either the Fed or the Markets figure out the destructive results of QEInfinity, it will remain so.

            ***overnight, ‘an unnamed source’ (cough, Larry Kudlow, cough) said that the US and China were close to a trade deal.  This after both Trump and Ross said yesterday that there likely won’t be a deal before the 2020 election.

Here is another detailed explanation on how QEInfinity has wreaked havoc on the global economy and financial markets.

More on valuations.

            November dividends by the numbers.

            Private equity and falling returns.

            The most depressing chart ever.

    News on Stocks in Our Portfolios
Mastercard (NYSE:MA+1.5% after-hours after increasing its quarterly dividend to $0.40/share from $0.33/share and authorizing the repurchase of as much as $8B of Class A common stock.
MA says the new buyback plan will take effect at the conclusion of the current $6.5B repurchase program, which has ~$300M remaining under its authorization.

   This Week’s Data


Month to date retail chain sales grew much faster than in the prior week, likely a function of Black Friday.

Weekly mortgage applications fell 9.2% but purchase applications were up 0.9%.


            The November Japanese final services PMI was 50.3 versus estimates of 50.4; the final composite PMI was 49.8 versus 49.9.

            The November Chinese Caixin final services PMI was 53.5 versus 52.7; the final composite PMI was 53.2 versus 51.2.

            The November German final services PMI was 51.7 versus 51.3; the final composite PMI was 49.4 versus 49.2.

            The November EU final services PMI was 51.9 versus 51.5; the final composite PMI was 50.6 versus 50.3.

            The November UK final services PMI was 49.3 versus 48.6; the final composite PMI was 49.3 versus 48.5.


What I am reading today

            Is inequality really the problem?

            How to increase taxes on the rich.

            Disrupting the health care market.

            Why single payer will not necessarily lower costs.

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