The Morning Call
12/5/22
The
Market
Technical
The S&P continued
its advance. The minor uptrend off its 10/13 remains intact and with it the likelihood
of a Santa Claus rally. My attention remains
on resistance not support. Specifically,
(1) its 200 DMA [~4047], which it has now finished above for the third day; if it
remains there through the close today, it will revert from resistance to
support. Clearly, if that occurs, it
will provide additional strength to the Sana Claus rally thesis, (2) the upper
boundary of its short term downtrend [~4122] and (3) the initial 23.6%
Fibonacci retracement level [4200].
A
major breadth indicator suggests that we are at or close to a bottom.
Stay patient.
The long bond continued
its rally, ending above its 100 DMA on Friday; if it remains there through the
close on Tuesday, it will revert from resistance to support. As you can see, it is a short hair away from
the upper boundary of its very short term downtrend. Voiding both the 100 DMA and that downtrend
would clearly break the downward momentum that has existed for almost a year
and leave room for an advance to its 200 DMA (114.49). On the fundamental side, last week Powell
continued the Fed’s volatile ‘fine tuning’ bulls**t narrative with a switch to
a more dovish tone (cheap umbrella)---making those bond guys again look like
geniuses.
Gold finished its
backing and filling from the Titan III formation of the preceding three weeks
and rocketed higher again. It made a
failed attempt at breaching its 200 DMA but did so on another huge gap up
open. So, a retreat was to be
expected. Still if it does manage to
reset that DMA, it has an open field to the upper boundary of its intermediate term
uptrend. However, like TLT it has three
major gap up opens below that will need to be filled. The current pin action should not be a surprise
given the long bond is rising (long term interest rates are declining) and the
dollar continues weak.
Little new: The
bad news is that UUP (1) voided its very short term up trend and (2) reset its
100 DMA from support to resistance. The
good news is that it remains (1) above its 200 DMA, (2) within short,
intermediate and long term uptrends and has (3) made three huge gap down opens which need
to be filled. So, while the strong
upward momentum in the dollar has clearly been broken, I don’t think that it is
clear that it has made a trend reversal. Though clearly, its proximity to its 200 DMA
suggests that that thesis will be tested.
Friday in the
charts.
Getting close to
inverse panic.
https://www.zerohedge.com/the-market-ear/sayhello
NASDAQ still
struggling with its 100 DMA.
https://www.zerohedge.com/the-market-ear/cojexhxywh
This is why you
need a four day rule on the 200 DMA.
https://www.zerohedge.com/the-market-ear/cgnn8gfcfgt
Fundamental
Headlines
The
Economy
Review last week
Last
week the US stats were positive as were the primary indicators (three up, two
neutral). Overseas, the data was negative.
On the whole, it appears that the rest of the world is ahead of the US
both in terms of inflation peaking and an economic slowdown. To be clear, I continue to believe that
inflation has indeed seen its high in the US. On the other hand, an economic slowdown
is not as apparent---witness last week’s data flow. That divergence I think accounts for the Fed’s
rather volatile rate hike narrative---again remember the hawkish statements by
several FOMC members week before last, then Powell’s dovish reversal last week.
As I
suggested last Friday, it would probably be better served if Powell et al just kept
their collective mouths shut about the future course of monetary policy. But then I don’t get paid the big bucks.
‘But frankly,
I don’t think that it matters in the long run.
The economy is too deep in the doo doo for all to end well. Years of fiscal profligacy have left us with
a debt to GDP ratio far in excess of the boundary marked by Rogoff and Reinhart
as the level at which the servicing of too much debt negatively impacts the growth
rate of the economy. And years of
irresponsible monetary expansion have led to the misallocation of resources and
the mispricing of risk.
Correcting those self-inflicted wounds won’t be determined by whether the
Fed Funds rate is lifted by 50 or 75 basis points. It will take years of fiscal and monetary restraint
to do so. And that would mean less
fiscal stimulus and interest rates
staying higher for longer than many now expect.
The question is, does our ruling class have the courage to do that? As it currently exists, I believe that the answer
is a resounding NO. That means more
years of below average economic growth and more of same ‘fine tuning’ bulls**t from
the Fed, i.e.., staying too loose for too long then remaining too tight for too
long.’
US
International
October EU retail sales fell 1.8% versus
estimates of -1.7%
The final November
German services PMI was 46.1 versus consensus of 46.4; the composite PMI was
46.3 versus 46.4; the final November EU services PMI was 48.5 versus 48.6; the
composite PMI was 47.8, in line; the final November UK services PMI was 48.8, in
line; the composite PMI was 48.2 versus 48.3.
Other
Vehicle sales declined in October.
https://www.calculatedriskblog.com/2022/12/vehicles-sales-declined-to-1414-million.html
Fannie
Mae serious mortgage delinquency rate fell in November.
https://www.calculatedriskblog.com/2022/12/fannie-mae-mortgage-serious-delinquency.html
The Fed
What
is driving bank liquidity?
Fiscal Policy
The
inevitable bankruptcy of mandatory spending.
https://www.zerohedge.com/economics/americas-insolvency-mandatory
Senate republicans demand McConnell accept only a
short term spending bill. Why didn’t
they do this six years ago?
News on Stocks in Our Portfolios
What
I am reading today
Northern hemisphere snow cover at 56
year high.
https://www.zerohedge.com/weather/global-warming-northern-hemisphere-snow-cover-56-year-high
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