The Morning Call
1/18/22
The
Market
Technical
Talk
about walking a tightrope. After last week’s unsuccessful challenge of the
lower boundary of its short term uptrend, the S&P rallied into the early part
of the week, failed to make a new high, then plunged of Friday, trading below
that lower boundary for most of the day but lifting into the close to end right
on the boundary. That pin action keeps intact my assumption that the direction
is up. But technically, this is weak performance and a break lower wouldn’t be
a surprise.
On the other hand,
a Goldman indicator says look out above.
https://www.zerohedge.com/the-market-ear/cbjgcmt2qg
Look to the
cyclicals?
https://www.zerohedge.com/the-market-ear/cqmrfbunyd
Sentiment update.
https://www.zerohedge.com/the-market-ear/cunar4kpxw
The long bond tried
to rally last week but ended making a lower high and a lower low. As I noted
last week, this likely means that either the economy will be stronger than
anticipated, inflation will be higher, the Fed tighter (interest rates higher)
or some combination thereof. Last week’s economic data (see below) suggests
that it is not a stronger economy that the bond buyers fear (but as I noted, it
is just one week’s worth of stats) but rather comports nicely with my thesis
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/cckbrmz3ux
https://www.zerohedge.com/the-market-ear/ctb39gkfel
GLD
popped early in the week, resetting its 200 DMA to support and then settled
down. Meanwhile, it remained within the narrowing pennant formation [two
straight red lines]---the technical assumption being that until it breaks out
of that formation, it will be directionless.
The dollar had an
exciting week. It spiked down on Wednesday, challenging both its 100 DMA and
the lower boundary of its short term uptrend---both of which proved
unsuccessful. It did close right on that lower boundary. Let’s see if it bounces
off of it.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Review of last Week
It was not a good
week in US economic stat land, the numbers were overwhelmingly negative,
including two primary indicators, both inflation markers and sentiment. That
doesn’t mean that all is lost; but it only feeds an already negative trend. On
the bright side, overseas, the data was quite positive for the second week in a
row. But like the US, the trend continues to be downbeat.
Adding to the negative
news flow in the US, the head of almost every regional Fed bank went on record
as an inflation fighter, reinforcing the official beginning of monetary
tightening. And not to be repetitious, but I think it in line with every other
past mistake the Fed has made, i.e., waiting too long to begin a more
restrictive monetary policy.
In addition,
analysts are falling all over themselves to up their forecast for rate hikes
and the end of QE. Here are some examples.
https://www.zerohedge.com/markets/one-bank-predicts-3-trillion-quantitative-tightening
And.
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.
US
The January NY Fed
manufacturing index was reported at -0.7 versus estimates of +25.
https://www.zerohedge.com/economics/empire-fed-manufacturing-survey-collapses-contraction-january
International
November
Japanese machine tool orders were up 3.4% versus expectations of +1.4%.;
November industrial production was up 7.0% versus +7.2%.
The
November UK unemployment rate as 4.1% versus predictions of 4.2%; November
average earnings were up 4.2%, in line.
Q4
Chinese GDP grew 1.6% versus consensus of +1.1%; Q4 YoY industrial production
was up 4.3% versus +3.6%; Q4 YoY retail sales were up 1.7% versus +3.7%; Q4 YoY
fixed asset investment was +4.9% versus +4.8%. In response to this data, the
Bank of China cut key interest rates.
The
January EU economic sentiment index came in at 49.4 versus forecasts of 29.5;
the January German economic sentiment index was 51.7 versus 32.0.
Other
Update on big four economic indicators.
The
Fed
You can’t have it both ways.
https://www.zerohedge.com/markets/dont-fight-fed
Morgan Stanley on the Fed’s balance sheet
runoff.
Inflation
If inflation is rising, why are TIPS yields so
low?
China
More supply chain shocks on the way.
And that is not its only problem, as its property
market continues to weaken.
News on Stocks in Our Portfolios
What
I am reading today
The
current US/Russia confrontation in Ukraine bears watching.
As long as I am
on the subject of geopolitical risk, here is a thought.
https://www.zerohedge.com/geopolitical/geopolitics-big-market-risk-were-missing
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