Monday, February 8, 2021

Monday Morning Chartology


The Morning Call




The Market




After touching (almost to the penny) the lower boundary of its short term uptrend the prior Friday, the S&P bounced nicely last week almost regaining its former very short term trend line.  It would appear that (1) the Reddit crowd’s impact on the Market is less impactful than originally thought and (2) the Fed with the new assistance of the federal government remains the dominating Market force.  I can’t bring myself to even consider buying stocks at these valuation levels; but clearly, that has been a losing strategy.  My consolation is that the stocks I own are going up and I sleep well.



TLT continues to trend lower.  Remember though that the March peak was well above the upper boundary of the long bond’s long term uptrend (the straight blue upward slopping line).  Hence, prices can drop (interest rates rise) a lot more before any serious technical damage is done.  The question is, are bond investors discounting higher inflation or stronger economic growth (or some of both)?  My answer is the former because I don’t believe that economic growth will be as robust as current consensus.  Whichever the case long term, the chart suggests lower bond prices short term.



GLD continues to get beaten like a rented mule---blowing through its 200 DMA decisively last week.  The next visible support is the lower boundary of its very short term uptrend and that is almost 20 points lower.  Note I said ‘very short term uptrend’, which would not be a disaster if it were broken.  In sum, technically speaking, there is considerable potential downside from here.  How much will likely depend on the higher inflation versus stronger growth tradeoff discussed above.  However, note that on a very, very short term basis, gold did gap down on both Tuesday and Thursday; so, filling those would not be a surprise.




The dollar maintained its upward bias last week, successfully challenging its short term downtrend and resetting to a trading range.  Not surprising given the rise in interest rates and the volatility in the stock market.  Still, it has a lot of resistance to overcome, likely making any follow through to the upside a struggle.




Bottom line.  Last week, the equity market threw off its concern over Market liquidity (a result of the Reddit short squeeze crowd),  reviving its faith in the Fed’s unrelenting pursuit of QEInfinity and the political class’s passion for throwing money at anything that walks, talks and has one.  The remaining indicators seem to be supporting the end results of this scenario in one way or the


Friday in the charts.



            Margin debt at record highs.









              The Economy


                         Review of the Week


The US datapoints last week were overwhelmingly positive, although the  primary indicators were not (two plus, one neutral, one negative).  I rate the week a positive.  This is the third week in a row of upbeat numbers; more evidence that indicates that the worst is behind us.  Nonetheless, I do not think that it augurs for a ‘V’ shaped recovery---just the continuation of a labored effort to improve.


Overseas, the stats were weighed to the plus side.  Every little bit helps, but no positive trend yet.


For the moment, our base economic scenario remains intact---the US and global economies are improving but not at the velocity of the initial sharp rebound off the bottom.  In other words, a diminishing probability of a ‘V’ shaped recovery which would lessen any potential inflationary pressures and leave the Fed free to continue QEInfinity. 


Longer term, my belief is that the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which continue to become even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.



                                  The coming surge in liquidity.










                          Consumers paid down their credit cards for a third straight month.



            The short squeeze


Retail may have ‘stuck it to the suits’ in the GameStop short squeeze, but the suits also stuck it to the suits.



              The shorts have left the Market.



            The coronavirus


              Even the ‘scientists’ model shows even of coronavirus scourge by June.



            Bottom line.


              Q&A with David Rosenberg.



  The latest funds flow in hedge funds.


  Tesla buys $1.5 billion bitcoin.



         News on Stocks in Our Portfolios



What I am reading today


            Quote of the day.

            Quotation of the Day... - Cafe Hayek


            Bonus quote of the day.

            Quotation of the Day... - Cafe Hayek

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