Friday, February 28, 2020

The Morning Call--No relief likely till we gets signs that the coronavirus is peaking

The Morning Call


The Market

Despite being as oversold as I can remember, the Averages  (25766, 2978)  continued their waterfall formation.  (1) the Dow ended below its 200 DMA for a third day, [now support; if it remains there through the close today, it will revert to resistance] and (2) the S&P finished below [a] its 100 DMA for a third day, reverting to resistance, [b] 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 trading range} and [c] its 200 DMA {now support; if it remains there through the close next Tuesday, it will revert to resistance}.

So, the indices continue to relentlessly chew through resistance level after resistance level getting evermore overextended to the downside.  The latter point suggests that some kind of relief rally on a very short term basis.  But the overall technical condition of the Market is in such poor shape that I think it likely that lower prices are part of our future.

Supporting this conviction, the pin action in the long bond and gold continues to reflect their investors’ desire to embrace the ‘safety trade’.  To be sure, the dollar was weak yesterday---breaking below the lower boundary of its very short term uptrend.   This is the first crack in that (TLT, GLD, UUP) ‘safety trade’ wall.  So, it needs to be monitored; but it is too soon to dismiss the need for the ‘safety trade’.

            Thursday in the charts.



            Yesterday’s numbers were weighed to the upside. January pending home sales, January durable goods orders/ex transportation and the February Kansas City Fed manufacturing index were better than expected while the Q4 second estimate of GDP growth was in line and weekly jobless claims were disappointing.

            February EU business confidence and economic sentiment were ahead of forecasts while consumer confidence and services sentiment were in line.

            Again, the coronavirus was the principal non Market headline of the day.

            The latest on the coronavirus.


Bottom line: the Market remains tormented by a list of unknowns;

(1)   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.  We don’t even know when the negative infections/deaths headlines will peak,

(2)   we still don’t know what the TLT, GLD and UUP markets were discounting in the initial phase of the early December to present moon shot [remember they started their tear long before we ever heard of the coronavirus]; though my speculation is that they foresaw a global recession.  The coronavirus simply made things worse which implies a 2020 economy much weaker than many expect even assuming we get the virus under control within a reasonable timeframe,

(3)   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 [i.e. what benefit is lower rates when global interest rates are declining; and what benefit is QEV, when NotQE doesn’t seem to have done much to halt the latest decline?] and/or will the Market care?

                  Former Dallas Fed head Fisher says repeal the ‘Fed put’.

                 Laguard was also out with ‘non dovish’ comments.

            Are institutional investors ‘panic holding’?

            Is it over yet?

            Is the stock market going to crash?

    Subscriber Alert

            The stock price of Federal Express (FDX) has traded into its Buy Value Range. Accordingly, FDX is being Added to the Dividend Growth Buy List.  The Dividend Growth Portfolio will initiate a one half position on the Market open.

    News on Stocks in Our Portfolios


   This Week’s Data


            January pending home sales rose 5.2% versus expectations of +2.2%.

            The February Kansas City Fed manufacturing index came in at +8 versus projections of -5.

            January personal income rose 0.6% versus consensus of +0.3%; personal spending was up 0.2% versus +0.3%.

            The January trade deficit was $65.5 billion versus forecasts of $72.9 billion.

            January wholesales inventories fell 0.2% versus estimates of -0.6%; sales also declined.

            January core PCE came in at +0.1% versus an anticipated increase of 0.2%.          


            January Japanese retail sales rose 0.6% versus estimates of +2.4%; industrial production was up 0.8% versus +0.2%; housing starts YoY fell 10.1% versus -6.1%.

            February UK consumer confidence was -7 versus forecasts of -8.

            February German unemployment was 5%, in line; CPI was +0.6% versus +0.4%.


What I am reading today

            Radical hydrogen/boron reactor leapfrogs nuclear fusion technology.

            Quote of the day.

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