The Morning Call
1/31/22
The
Market
Technical
Despite
all the volatility, the S&P was basically flat on the week. However, it did
successfully challenge its 200 DMA which is now resistance. On the other hand,
the lower boundary of its recently reset short term trading range offered
visible support. So, we now have a tight range defined by the 200 DMA on the
upside and the lower boundary of the S&P’s short term trading range on the
downside. Follow through is now key. The question is which way.
Here comes month
end fund rebalancing.
https://www.zerohedge.com/markets/here-comes-fund-rebalancing-65-billion-month-end-buying
Like the S&P,
the long bond bounced around a lot last week but ended roughly where it started.
Short term, it is clearly under some pressure---having reset both DMAs to
resistance. But I don’t see any panic over a tightening Fed (lower prices). I
continue to believe the bond’s pin action is tied to the notion that ‘Powell
waited too late to get hawkish and now the Fed will be tightening into a weaker
economy---thereby making it even weaker.’
https://www.zerohedge.com/the-market-ear/ck4mkl6o8k
You
would think that in the midst of all the volatility and uncertainty around Fed
policy that gold would catch a bid. Au contraire, monsieur, it did just the opposite---trading
from the top end of the pennant formation (straight red lines) to the bottom
while challenging both DMA’s in just three trading days. All that pin action notwithstanding,
the technical assumption remains that until it breaks out of that formation, it
will be directionless.
The dollar had another
good week; in fact, it has a great week, trading to near the upper boundary of
its short term uptrend. I continue to believe that investors are buying the
dollar on the thesis that whatever happens---inflation, recession, military
conflict---the dollar will be the safe haven. There is one minor negative in
this chart and that is the huge gap up open on Thursday which will need to be
filled.
Friday in the
charts.
https://www.zerohedge.com/markets/sp-slumps-worst-start-year-1939-yield-curve-yells-recession
Fundamental
Headlines
The
Economy
Review of last Week
The economic stats
were downbeat last week, though the primary indicators were evenly divided (two
plus, two minus, one neutral)---nothing to suggest a reversal in the current
negative trend. Overseas, the numbers were negative, breaking a three week
trend in positive data. The question is, which one is the outlier.
Of course, the
major event of the week was the FOMC meeting, statement and Powell’s presser. I
won’t repeat my conclusions. But I will say that the analysis that followed
Powell’s hawkish comments is split in two camps: (1) he is not kidding and rate
hikes and tapering are coming with a vengeance versus (2) it is the same on
song, sound hawkish and fold like a cheap umbrella when the Market throws a
hissy fit. If history is any guide, alternative (2) is clearly the most likely
outcome.
In the meantime, my
outlook remains unchanged---the economy is struggling to grow, hampered by
irresponsible monetary and fiscal policies, getting no support from the global
economy and threatened by (1) seemingly mounting inflationary forces and (2) a
more severe than anticipated retreat in economic activity.
Atlanta Fed nowcast
for Q1 GDP growth at 0.1%.
https://www.zerohedge.com/economics/atlanta-fed-shocker-us-economy-verge-contraction
US
International
Q4 EU flash GDP growth was +0.3%, in line.
December preliminary
Japanese industrial production declined 1.0% versus estimates of -0.8%;
December preliminary retail sales were -1.0% versus +0.9%; December YoY housing
starts were up 4.2% versus +6.2%; December YoY construction orders were up 4.8%
versus +0.3%; January consumer confidence was 36.7 versus 39.5.
January
preliminary German CPI was +0.4% versus consensus of -0.3%.
Other
Update on big four
economic indicators.
Inflation
Labor costs growing
at the fastest pace in two decades.
https://www.wsj.com/articles/us-employers-labor-costs-inflation-11643331612?mod=hp_lead_pos2
Here is what is pushing inflation higher.
https://www.zerohedge.com/markets/coming-cpi-print-critical-stocks-here-are-top-inflation-drivers
China
IMF says Chain’s economic imbalances have
worsened.
https://www.wsj.com/articles/imf-says-chinas-economic-imbalances-have-worsened-11643356801
Bottom line.
BofA reiterates
bearish stance.
What to do when
the Market is looking weak.
https://www.pragcap.com/what-to-do-when-the-market-feels-crashy/
News on Stocks in Our Portfolios
What
I am reading today
The
most epic adventures in the fifty states.
The fascinating history behind
British names.
https://www.bbc.com/culture/article/20160309-why-does-britain-have-such-bizarre-place-names
Quote of the day.
https://cafehayek.com/2022/01/quotation-of-the-day-3785.html?utm_source=feedburner&utm_medium=email
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