Tuesday, December 17, 2019

The Morning Call--Upside momentum returns

The Morning Call


The Market

The Averages (28235, 3191) rose yesterday in the afterglow of Friday’s announced Phase One US/China agreement.  The Dow re-established a very short term uptrend, joining the S&P.  That leaves both index above both MA’s and in uptrends across all timeframes.  So, momentum is clearly to the upside, at least short term; and that is being aided by seasonal factors.

However, nothing changed with respect to those multiple gap up opens down below or my concern that this is not healthy and could be an indication that the Market is entering or has already entered a blow off top. 

Volume was up; breadth strong but is rapidly approaching overbought territory.  The VIX fell another 4 % and is nearing the lows established last April, July and November---now safely back in territory indicative of complacency. 

BofA market expectations

            Morgan Stanley market expectations.

The long bond declined 7/8%, the third highly volatile reversal day in a row suggesting confusion within the bond ranks.  Further, while its short term momentum remains down  (1) as it is still below its 100 DMA,  (2) it continues trade in a trend of lower highs and (3) is now approaching the lower boundary of its very short term uptrend, it is developing a series of higher lows potentially creating a pennant formation which would also be a sign of confusion or uncertainty.

The dollar fell a nickel, ending below its 100 DMA now resistance and moving closer to the lower boundary of its short term trading range.

Gold was down one cent, remaining near the upper boundary of its very short term uptrend as well as its 100 DMA.  While it remains in that trend of lower highs, it is also developing a trend of higher lows---very similar to the trading pattern of TLT.

The trading pattern of the VIX and the S&P are clearly pointing at a stronger economy, while TLT, UUP and GLD are suggesting uncertainty among its investors.

            Monday in the charts.



            The December flash PMI’s were released across the globe yesterday.  Here at home, they were upbeat as was the December housing market index.

            Overseas, they were mixed.  Though YoY Chinese fixed asset investment, industrial production and retail sales were all above estimates.               
As you might expect, the US/China trade deal announced on Friday was one of the major macroeconomic headlines of the day.  As you also might expect,  everyone had an opinion.  I started to list a number of both pro and con positions.  I had linked to eight articles before I read the below.  But once I did, I scrapped them all.  This by far the best and most thorough discussion of Phase One that I have seen thus far.

                The other story that bears watching is the Fed/repo liquidity problem.  I noted yesterday that the first test was occurring.  So far, the result has been passable.  Here is some more insight.

                Bottom line: it would appear that volatile US/China trade headlines will probably return soon enough, which will likely have some spillover effect on stock prices.  That said, with the Fed pumping oodles and oodles of money into the financial system, the impact on the Market should be a plus, at least initially. 

            I would be sure to use the current Market strength to build cash reserves.  If you have already done that, enjoy.

    News on Stocks in Our Portfolios


   This Week’s Data


            The December flash manufacturing PMI came in at 52.5, in line, the services PMI was 52.2 versus 51.9, the composite PMI was 52.2 versus 51.9.

            The December housing market index was reported at 76 versus expectations of 70.
            Month to date retail chain store sales declined at a faster rate than in the prior week.

            November housing starts rose 3.1% versus consensus of up 1.6%; building permits were up 1.4% versus -4.1%

            October UK unemployment stood at 3.8% versus estimates of 3.9%.

            The October EU trade surplus was E28 billion versus projections of E17 billion.
             The problem with deficits.

              ***overnight, Johnson says no more Brexit delays.

              Bulk shipping rates continue to plunge.

What I am reading today

            Time magazine’s top 100 photos of 2019
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