Thursday, February 27, 2020

The Morning Call---The Market hates uncertainty; and we have lots of that.

The Morning Call


The Market

The Averages  (26957, 3116)  continued their high volume challenge of multiple support levels yesterday.  (1) the Dow ended below both its 100 DMA for a third day, reverting to resistance and its 200 DMA for a second day [now support; if it remains there through the close on Friday, it will revert to resistance] and (2) the S&P finished below its 100 DMA for a second day [now support; if it remains there through the close today, it will revert to resistance] and the lower boundary of its short term uptrend [if it remains there through the close on Friday, it will reset to a trading range].

The above is a lot of resistance to get through especially when the indices appear to have exhausted themselves on the downside.  That is not to suggest that prices won’t go lower (and I think that they will) but just to observe that the Averages are extremely oversold on a very short term basis.  So, something more than a pathetic intraday rally seems likely somewhere in our near future. 

That said, the momentum that has taken stocks to current levels has not likely dissipated.  My conviction for this assumption stems from the pin action in the long bond, gold and the dollar which continues to point to a weakening global economy/need for safety.  So, I think it reasonable to assume that the above support levels will get successfully challenged. 

            Time to be very careful.

            Wednesday in the charts.



            Yesterday was a slow day for data.  Weekly mortgage and purchase applications were up and January new home sales were very strong.

            Bottom line: both the live and print media were dominated by coronavirus headlines yesterday.  Which understandably have citizens/investors concerned and that is not helping psychology.
            ***overnight news on the coronavirus.

From the Market’s standpoint, it hates uncertainty and we still have no idea about the timing and extent to which the economic impact of the coronavirus will start showing up in the numbers. 

However, that is not the only unknown.  We still don’t know what the TLT, GLD and UUP markets have been discounting (remember they started their tear long before we ever heard of the coronavirus), whether they are correct and how that gets reflected in equity prices. 

Finally, we don’t know what the fiscal/monetary policy reaction will be to this crisis.  But we do know that easy fiscal and, especially easy monetary policies have heretofore played an enormous role in the pricing of risk.  Does anyone doubt that Fed won’t crank up the volume if the virus creates economic turmoil?  The questions are, will it do any good  and/or will the Market care?

            Those unknowns will likely continue to make the Market the main story.

            What is the Fed to do?

            Because what it has done to date has been a failure.

            Helicopter money has arrived.

    News on Stocks in Our Portfolios


   This Week’s Data


            January new home sales rose 7.9% versus estimates of up 3.5%.

                The Q4 GDP growth second estimate was +2.1%, in line; the PCE price deflator was +1.3% versus forecasts of +1.6%.

            January durable goods orders fell 0.2% versus expectations of -1.5%; ex transportation, they were up 0.9% versus +0.2%.

            Weekly jobless claims increased 8,000 versus consensus of +1,000.



            February EU business confidence came in at -0.04 versus forecasts of -.28; consumer confidence was -6.6, in line; economic sentiment was 103.5 versus 102.8; industrial sentiment was -6.1 versus -7.3; services sentiment was 11.2, in line.


What I am reading today


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