The Morning Call
12/7/20
The
Market
Technical
The
S&P has now solidly challenged its all-time and reset its short term trend
to up, putting it in uptrends across all timeframes and above both DMA’s. But in doing so, it has gotten severely
overbought, suggesting some price weakness near term. But as I have noted, longer term there is no
visible resistance for almost 1000 points.
Bear
in mind that the above comments are strictly technical and, therefore, must be
weighed against any fundamental (valuation) comments that I may make in the
Bottom Line section.
Will
there be a Santa Claus rally?
Equity put/call ratio at an extreme.
https://quantifiableedges.com/equity-put-call-ratio-at-historical-extreme/
On Friday, the
long bond challenged the lower boundary of its very short term uptrend for a
second time in a week. If it remains
there through the close today, the very short term trend will reset to a
trading range. If that happens, having
already reset both DMA’s to resistance, the next support level is ~15%. How fast it gets there will likely have an
impact on equity prices---I have noted that at slow rise would suggest
increased economic activity (good for stocks) while a quick rise would imply
rapidly rising inflation expectations (bad for stocks).
Having tested its
200 DMA two Fridays ago, GLD bounced hard last week, negating the break of that
moving average. Longer term, that leaves
it in uptrends across all timeframes, above its 200 DMA with the 100 DMA (now
resistance) the only technical negative.
However, you can clearly see that gold continues to exhibit weakness in
the very short term. That keeps it a
zone of uncertainty---will it push upward out of the downtrend from August or
successfully challenge its 200 DMA and trend even lower? A lower dollar suggests the former, higher
yields the latter.
The dollar’s chart
is what really gets my attention. UUP
had reset both DMA’s to resistance some time ago. Last week, it reset its short term trading
range to a downtrend and its intermediate term uptrend to a trading range. That is some pretty serious technical
damage. And the next visible support
level is down another 5% which is a big move for the dollar. The investment implications are much like the
long bond. A gradual decline can be good
for stocks because it makes US goods cheaper in overseas (hence, better
corporate profits). However, a spike
could imply a loss of faith in the US/economy and that would be bad for
stocks. Unfortunately, right now, it
appears that a flush lower is happening and that is not good. But that is somewhat at odds with what is
going on in the bond market. So, color
me a bit confused but attentive to these two markets as signals for the equity
market.
Friday in the
charts.
https://www.zerohedge.com/markets/mega-tech-small-caps-surge-dollar-purge-accelerates
Fundamental
Headlines
The
Economy
Review of last week
The stats
were upbeat for the third week in a row---but this time the primary indicators were tilted to the plus
side. If this trend continues for a
couple more weeks, then odds of a follow through to the third quarter rebound
improve. Unfortunately, there remains
considerable uncertainty over a stimulus bill and lockdowns are proliferating
in the holidays.
Risks of a
double dip rising?
http://econbrowser.com/archives/2020/12/risks-of-a-double-dip-rising
In addition,
the Fed released its latest Beige Book report.
However, it provided little in terms of informational value with respect
to a recovery.
Overseas, the
indicators were very positive for a second week in a row. But we need more consistency in the trend of
the data to start getting upbeat. Regrettably,
the renewed lockdowns occurring across Europe don’t give much promise of steady
improvement. Not helpful to our own
recovery.
Whatever the
shape or magnitude of the near term bounce back, I am not altering my belief
that long term the economy will grow at a historically subpar secular rate due
to the twin burdens of egregiously irresponsible fiscal and monetary
policies---which, by the way, are becoming even more egregiously irresponsible
as a result of measures being taken by the government and the Fed in dealing
with the current crisis.
US
International
Other
The latest in the Brexit negotiations.
Problems with the new OPEC agreement.
https://www.zerohedge.com/energy/worrying-truth-about-new-opec-agreement
Bottom
line.
The rally in oil stocks maybe premature.
https://www.zerohedge.com/energy/energy-rally-likely-premature
News on Stocks in Our Portfolios
What
I am reading today
Quote
of the day.
Quotation
of the Day... - Cafe Hayek
Being a
reasonable optimist (great read).
https://www.collaborativefund.com/blog/the-reasonable-optimist/
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