Monday, February 22, 2021

Monday Morning Chartology


The Morning Call




The Market




The S&P continues its advance, though the rate of increase is slowing.  Still, up is up and will be until it isn’t.  As I said last week ‘while valuations continue to reach historical extremes, I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’



The TLT is just the opposite of the S&P’s.  The long bond continues to decline and rate of decrease is accelerating.  The good news is that it is approaching the lower boundaries of its very short term and short term trading ranges---which should provide support.   Whether that slows the rate of deterioration or stops it altogether is the big question.  The even bigger question is, if it is the former, at what level do the stock boys bail?


Last week, GLD continued its decline.  The closest visible support is the lower boundary of its very short term uptrend (upward sloping green line)---and yes, that is its VERY short term uptrend.  Note that it is 20 points lower.  In short, GLD got overextended to the upside and can fall a good deal before any longer term technical damage is done.


The dollar tried to rally early last week.  The bad news is that it fell back unable to make a new higher high and then retreated to its prior low.  The good news is that it is nearing the lower boundary of its short term trading range (horizontal brown line) which acted as support back in early January.  My assumption remains that while UUP has made a bottom, it has a struggle ahead to affect any follow through to the upside.

            Friday in the charts.



Watch oil closely.







              The Economy


                         Review of the Week


The US data last week was positive, including the primary indicators (three plus, one neutral).  That keeps the string of upbeat stats alive---long enough that I think safe to conclude that the worst of coronavirus economic disruptions are behind us.


That puts two questions before us.  One, will the recovery accelerate, closing the output gap in a short time or will the economy continue to struggle to regain its historical secular growth rate?  I think that this is the easier question to answer because I see no reason to alter my assumption that the current grossly irresponsible monetary and fiscal policies will act as a drag on economic growth. So, while I expect growth to continue, I do not expect either its rate of growth to match the levels reached as the economy bounced off the bottom or the economy to close the existing output gap in the foreseeable future.


How the federal budget became detached from reality.


Two, will or won’t the economic recovery be accompanied by an increase in the inflation rate that will push it to levels that historically have proven problematic for both the economy and the securities’ markets?  This issue is a bit tougher to analyze. 


At first blush, it seems reasonable to assume that if economic growth remains subpar, then there will be few upward price pressures aside for those temporarily created by the dislocations due to coronavirus government restrictions. 


On the other hand, with the vast amount of liquidity sloshing around the global economy, commodity prices could respond to speculation (as they appear to be doing now).  Throw in higher labor costs resulting from an increase in the minimum wage and there is an argument for upward supply side pressures.  At present, I am not convinced to the merits of this thesis.  But we have never been in a period in which monetary/fiscal policies were so recklessly applied.  So, I am hoping for the best (low inflation) but preparing for the worst.


That means lessening my portfolio’s exposure to bonds, continuing to sell a portion of any stock that reaches its Sell Half range, especially, high multiple growth stocks and focus any buying on value stocks.


Goldman’s thoughts.


Overseas, the stats were also positive---which is a plus for the US. Though as I have noted previously, the recovery in Europe will likely be more anemic than our own.




              The January Chicago Fed national activity index came in at .66 versus      December’s reading of .41.






The February German business climate index was reported at 92.4 versus consensus of 90.5.




          Fiscal Policy


            House releases text of $1.9 trillion stimulus bill.





            Cases, deaths and careers are dropping like rocks.





         News on Stocks in Our Portfolios



What I am reading today




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