Wednesday, March 11, 2020

The Morning Call--This is worse than 2018

The Morning Call


The Market

The Averages  (25018, 2882) bounced yesterday---not surprising given how oversold they were on Monday’s close (that notwithstanding, they are still oversold)  The technical highlights included multiple reversals though the S&P finished below its 200 DMA for a fourth day, reverting to resistance.  However, it ended back above ( 1) the lower boundary of its short term trading range, voiding that break and (2) the lower boundary of its intermediate term uptrend, voiding that break.  On the other hand, the Dow finished below 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). 

            The fastest bear market in history.

            This is not a Q4 2018 selloff (must read).

One other technical point that bears mentioning is that the VIX declined much less than I expected---suggesting continued investor concern.

TLT, GLD and UUP staged major reversals.  TLT and GLD’s charts remained positive.  UUP closed back above the lower boundary of its short term trading range, voiding Monday’s break. 

The question is, did all the above reversals mark the end of the investor anxiety?  Follow through.

            Tuesday in the charts.


The US dataflow continues sparse.  Yesterday, month to date retail chain store sales were disappointing while the February small business optimism index was in line.

            Overseas, February Chinese CPI, the final Q4 EU GDP growth estimates and employment changes were in line.  February Japanese machine tool orders were awful.

            The three risks:

            The coronavirus.

                        An infectious disease has not previously caused a recession.
                        Atmospheric CO2 and the coronavirus.

                        The coronavirus by the numbers.

                        Panic government policies in not the solution.

                        Speaking of which.


                        Assessing the impact of the oil price decline.

            The Fed

                        Lower rates and more QE won’t solve the Fed’s problem.
***overnight, Bank of England cuts rates 50 basis point, Laguard promises ECB action and Merkel says that she would consider doing away with the balanced budget requirement.
                          And Japan buys record amount of ETF’s.

            Bottom line: 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.

More optimistic thoughts.

            Things to remember in the heat of battle.


    News on Stocks in Our Portfolios


   This Week’s Data


            Month to date retail chain store sales declined at the same rate as the prior week.

            Weekly mortgage applications rose 55.4% while purchase applications were up 5.6%.

            February CPI was +0.1% versus consensus of 0.0%; core CPI was +0.2%, in line.


            The January UK trade balance was +L4.2 billion versus estimates of -L3.7 billion; manufacturing production was +0.2%, in line; industrial production was -0.1% versus +0.3%; GDP was 0.0% versus +0.2%; construction output YoY was up 1.6% versus up 2.4%.


            Is inflation really dead?

What I am reading today

            The Biden tax plan.

            It is too soon for the complete switchover to renewable energy sources.

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