The Morning Call
11/1/21
The
Market
Technical
I noted earlier in
the week that the S&P (1) had made a new all-time high and (2) in the process reset its short term trend from
a trading range to an uptrend. The very
strong seasonal factor suggests that this uptrend bias will continue. On the other hand, last week’s turbulence in
the (short end of) the yield curve (i.e., short rates spiking higher) is
historically a sign of an economic slowdown/recession. It doesn’t make sense to me that stock prices
will continue to rise in the face of a slowing economy, rising short rates and
the beginning of the end of QE. But then
for the last decade investors have generally opted to see all news as good news. So, for the moment, the technical assumption
has to be that the upward bias will continue.
After establishing
a higher low the prior Thursday, the long bond bounced hard last week,
resetting both its 100 and 200 DMAs to support.
But as I documented last week, that was only one half of the story. The other half being the spike in short term
yields/flattening of the yield curve. As
I noted, this is historically a signal that the bond guys are anticipating an economic
slowdown/recession.
https://www.zerohedge.com/the-market-ear/bond
With big hedge
funds getting caught offsides.
Eurodollar carnage
as rate hike odds increase.
https://www.zerohedge.com/markets/eurodollar-flattening-carnage-rate-hike-odds-spike
Is the ECB losing control
of the front end of the yield curve?
https://www.zerohedge.com/markets/ecb-loses-control-front-end-inflation-comes-scorching-hot
Last Monday, I observed (about the prior week’s pin
cation) that ‘It appears that GLD had finally found some life after four
months in a downtrend. On Friday it finished
(1) above its 100 DMA [now resistance];….., (2) above its 200 DMA [now resistance];….,
and (3) above the aforementioned
downtrend. If it remains there through
the close today, it will negate that trend.’ Gold’s pin action last week totally negated
everything I said, i.e., it (1) voided the challenge of both DMA’s, leaving
them as resistance, (2) failed its challenge of the downtrend off its June 2021
high and (3) broke to the downside out of a pennant formation, sugesting
further declines ahead. This reversal
was likely a function of the suge in short term interest rates. So, if rates continue
to rise, GLD’s test of the lower boundary of its very short term upternd seems
probable.
Like GLD, the
dollar behaved as one might expect in the face of a rise in short term
rates---it rallied nicely, bouncing off the uptrend line from its May low. A challenge of the upper boundary of its very
short term trading range is the next stop.
Friday in the
charts.
https://www.zerohedge.com/markets/sp-tops-4600-fitting-end-best-month-2021
Technically
speaking.
https://www.zerohedge.com/markets/market-melts-economic-growth-weakens
Fundamental
Headlines
The
Economy
Review of Last Week
The US data
releases turned positive again though the primary indicators were evenly matched
(two negative, two positive, one neutral).
While the data has been more mixed of late, I don’t think that alters
the outlook--- struggling growth now and into the future. That scenario gained
some support from the bond guys as the yield curve suddenly and violently
flattened last week. Follow through.
Overseas, the
numbers were equally divided--so, no help for the US.
Morgan Stanley not
hopeful.
We did get a
potentially bit of good news on the fiscal policy front: the dems are in total
disarray on Biden’s spending plans. Let’s
hope that is a lasting affliction.
Bottom line: growth
isn’t going to pick up because the economy is burdened with increasingly irresponsible
monetary and fiscal policies; and continuing liquidity infusions will only aid
inflationary forces.
US
International
September German retail sales fell 2.5% versus
estimates of +0.6%.
The final October Japanese
manufacturing PMI came in at 53.2 versus 51.5 in September; the final October Chinese
Caixin manufacturing PMI was 50.6, in line; the final October UK manufacturing
PMI was 57.8 versus 57.7.
Inflation
The ‘transitory’ inflation outlook remains
challenged.
http://www.capitalspectator.com/transitory-inflation-outlook-remains-challenged/
China
China reacts to US presence in Taiwan.
Bottom line
Never too early to
sell a bubble.
https://www.advisorperspectives.com/commentaries/2021/10/28/never-too-early-to-sell-a-bubble
How
news looks when it is old.
https://ritholtz.com/2021/10/how-news-looks-when-its-old/
Let
the market worry for you.
https://theirrelevantinvestor.com/2021/10/28/let-the-market-worry-for-you/
News on Stocks in Our Portfolios
Illinois Tool Works (NYSE:ITW) declares $1.22/share quarterly dividend, in line with previous.
What
I am reading today
Monday
morning humor.
Biden’s 85 vehicle
motorcade.
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