Friday, March 13, 2020

The Morning Call--A giant margin call

The Morning Call


The Market

The Averages  (21200, 2480) continued their Thelma and Louise formation and, in the process, got more oversold.  The pin action had all the markings of a giant margin call.  So, somewhere in here the liquidation halt, at least temporarily, and a bounce is going to happen.  The technical highlights included (1) the S&P finishing below [a] the lower boundary of its short term trading range for a second day; if it remains there through the close today, it will reset to a downtrend and [b] the lower boundary of its intermediate term uptrend for a second day; if it remains there through the close next Monday, it will reset to a trading range and (2) the Dow ending below the newly reset lower boundary of its short term trading range; if it remains there through the close on Monday, it will reset to a downtrend.  

            What happens after a waterfall formation?

            On a positive note.

            What is the VIX telling us?

TLT, GLD and UUP maintained the major reversals that began on Tuesday.  TLT and GLD fell but their charts remained positive.  UUP continued to rally. 

The question remains ‘are the reversals in TLT, GLD and UUP just a trading blip or are they starting to forecast a major change/incident in the economy as they did from late 2018 to their recent peak (low)?’ ---for instance, a Market rattling credit/liquidity event which would explain higher yields, lower gold prices and a strong dollar.

                        Thursday in the charts.


Yesterday’s numbers were upbeat.  The February budget deficit was less than anticipated; February PPI came in well below expectations (I think that a plus; the Fed doesn’t); and weekly jobless claims fell versus an expected  increase.

            Overseas, the data was also positive. February Japanese PPI fell more than  estimates while January EU industrial production was above consensus.

            Is a recession inevitable?

            The risks.

            The Fed.

The Fed pulled out its bazooka yesterday, injecting a massive dose liquidity into the financial system and got a giant raspberry from the Market.  More evidence of the Market’s loss of faith in the Fed.

            Corporate debt.

                        Where the credit risks are about to blow.

                        The danger of corporate America’s debt binge.
            Bottom line: We know the risks; and we know that investors are now fully aware of them.  The question is, how much is in the price of stocks?  Clearly, yesterday’s pin action is telling us that so far ‘not everything’.  I am not smart enough to know when all will be discounted.  But I do have a price discipline---when the stocks of companies that you want to own are down 50% or more and/or are selling into their Buy Value Ranges, that is the time to put cash reserves to work---you know sell high, buy low.  That said, I am no Market timing guru; so, a slow steady buy program on down days is the best I can do at buying low.

            Different kinds of declines.

     Subscriber Alert

            The stock price of Lear Corp (LEA) has traded into its Buy Value Range.  Accordingly, the Dividend Growth Portfolio will purchase a one half position at the Market open.

    News on Stocks in Our Portfolios
Oracle (NYSE:ORCL): Q3 Non-GAAP EPS of $0.97 beats by $0.01; GAAP EPS of $0.79 beats by $0.05.
Revenue of $9.8B (+2.0% Y/Y) beats by $50M.

Oracle (NYSE:ORCL) declares $0.24/share quarterly dividend, in line with previous.


   This Week’s Data




What I am reading today

            What is your risk of exposure in a public outing?

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