The Morning Call
2/26/20
The
Market
Technical
The Averages’ (27081,
3128) plunge continued on heavy volume yesterday reaching levels at which important
support levels are starting to be challenged; (1) both negated their very short
term uptrends, (2) the Dow ended below both its 100 DMA for a second day [now
support; if it remains there through the close today, it will revert to
resistance] and its 200 DMA [now support; if it remains there through the close
on Friday, it will revert to resistance] and (3) the S&P finished below its
100 DMA [now support; if it remains there through the close on Thursday, it
will revert to resistance] and right on the lower boundary of its short term
uptrend.
Update on margin
debt.
However,
challenges are significant only if they are successful; and right now, the only
real damage is the voiding of the very short term uptrends. So, at this moment, the Averages are, technically
speaking, in OK shape but on the threshold of serious technical impairment. Making matters all the worse is the pin action
over the last two months of the TLT, GLD and UUP markets which have been
shouting that the global economy was in significant danger of slipping into a
recession or something worse. And it now
looks like equity investors are starting to acknowledge the problems currently
being discounted in those markets.
Of course, that doesn’t
mean that
(1)
stocks can’t rally in the short term. Indeed, [a] they are dramatically oversold
right now, [b] gold and the dollar have consolidated over the last two days
taking some downward pressure off of stock prices and [c] and there is the
magnetic pull of Monday’s high gap down open,
(2)
bonds, gold and the dollar are discounting everything
correctly. Assuming their major worry is
economic growth, we still don’t know exactly what they were concerned about
before the coronavirus raised its ugly head and, now, how much worse the
coronavirus will make it. I do believe that as long as the long bond,
gold and the dollar continue to rise, equities have an uncertain future.
Tuesday in the
charts.
Fundamental
Headlines
Yesterday’s datapoints
were all negative. The December Case Shiller
home price index, February consumer confidence, month to date retail
chain store sales and the February Dallas and Richmond Feds’ manufacturing indices
were all disappointing.
Quantifying the
panic.
The probability of
recession.
Barry Ritholtz
still doesn’t think that we are in a recession.
Overseas,
the news was a little better. Q4
Japanese leading economic indicators and Q4 German GDP growth were both in
line.
When China sneezes.
Bottom line: in a
month or so, the economic impact of the coronavirus will start showing up in
the number. And at that point, we will,
at least, have to stop all the guessing.
In the meantime, the
Market is the main story. In my
opinion, it could easily remain that way until we 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.
Keep in mind that there
is more to the Market’s story than just the recent pin action in TLT, GLD, and
UUP. As you know, it has heretofore been
largely determined by (easier) fiscal and monetary policies coming to its rescue. Does anyone doubt that it won’t happen again? The question is, will the Market care?
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
February
consumer confidence came in at 130.7 versus projections of 132.0.
The
February Richmond Fed manufacturing index was -2 versus estimates of +13.
Weekly
mortgage applications rose 1.5% while purchase applications advanced 5.7%.
International
Other
What
I am reading today
Why sleep I is so important.
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