Wednesday, April 8, 2020

The Morning Call--How much damage

The Morning Call


The Market

Yesterday, the Averages  (22653, 2659) faded a huge intraday spike to close down.  The good news is that  (1) new higher lows have still been set, leaving the possibility that a bottom has been made and (2) both remained above the upper boundaries of their short term downtrends [if they remain there through the close today, the short term trend will reset to a trading range].  The bad news is that in that intraday surge, the indices traded near a key Fibonacci retracement level and retreated markedly---a sign that lower prices are in the offing.

As you know, I don’t believe a Market bottom has been made; that thesis, technically, is still hanging by a thread. 

            It is not the depth of a recession; it is the duration that determines the drawdown.

BofA: fade the rip.

Nothing but a short squeeze.

GLD, TLT and UUP were all down but nothing changed in their technical picture.


            Yesterday’ economic data was largely better than expected. The February job openings report (JOLTS),  February consumer credit rose and the March small business optimism index came in ahead of estimates.  On the other hand, month to date retail chain store sales grew more slowly than in the prior week.

            Overseas, the numbers were all good. February Japanese household spending and its February leading economic indicators as well as February German industrial production were above forecasts.

            The coronavirus

            Overnight update.

            More data on the coronavirus.
            The coronavirus and global warming.
            Half of all small businesses will close permanently if not allowed to reopen soon.

            Food fight over fourth bailout bill?

            EU fails to agree on coronavirus stimulus measures.

            Bottom line: as the coronavirus infection/death rates peak, we will begin to learn just how much damage government policy has been done the economy.  To be sure, I believe that the hard work and ingenuity of American workers and businesses will improve what otherwise might be a tragic situation.  However, there is still pain ahead, the level of which we have no clue.  The $64,000 question is, how much of that pain was priced into stocks at the March 23 low?  Until we get an idea of the magnitude and duration of economic harm, we won’t know.  In the meantime, I think buying equities into a rally is a mistake.

    News on Stocks in Our Portfolios


   This Week’s Data


            Month to date retail chain store sales grew more slowly than in the prior week.

            The February job openings report (JOLTS) showed a decline of 130,000 openings versus expectations of a fall of 412,000.

            February consumer credit rose $22.3 billion versus consensus of up $14 billion.

            Weekly mortgage applications fell 17.9% while purchase application were down 12.2%.


            February Japanese machinery orders were up 2.3% versus estimates of down 2.7%; its February trade surplus was Y3168 billion versus forecasts of Y3051 billion.


What I am reading today


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