The Morning Call
11/6/23
The
Market
Technical
I don’t need to
tell you that stocks had a hell of a week.
The S&P regained the 23.6% Fibonacci retracement level, pushed
through the 200 DMA (if it closes there today, it will reset to support) and
the 50 DMA (if it remains there through tomorrow, it will reset to support). That said, a chart like this (i.e., two
successive gaps up opens) makes me very nervous short term because of the
magnetic pull of those gap opens. That
doesn’t mean that this is a false breakout or that the Market isn’t going
higher. But historically, those gaps
tend to get filled in the reasonable near future. Further, the index is nearing the upper
boundary of a very short term downtrend which should offer resistance. Net, net, I think some backing and filling
that closes those gaps is likely. So, if
you are getting bulled up, I would wait for that to happen before committing
any funds.
Buying frenzy
activated.
Rally into year
end?
Rally
Into Year-End? - RIA (realinvestmentadvice.com)
On a longer term
basis, while the Fed may be ready to back off its tight monetary policy, a
spend thrift, war mongering ruling class remains a problem which will continue
to exacerbate inflation (and geopolitical strife).
https://www.zerohedge.com/political/dont-fall-bidens-latest-talking-point
I may very well
commit some funds if a back off occurs but I will not be going all in.
The long bond’s
chart looks similar to the S&P’s.
The big difference being the S&P bounced off a low last seen six
months ago and TLT off a low made sixteen years ago. The point being that TLT has a lot more room to
run than the S&P. But before getting
too jiggy, I want to see it at least make a new higher high---which it is now
just short of doing. Until then, I remain
on the sidelines.
With both interest
rates and the dollar falling, I thought that GLD would smoke. Au contraire.
Apparently, the all-time high is putting up some stiff resistance. Until that level is successfully challenged, I
see no reason to jump into GLD.
The dollar has danced along the upper boundary of its
short term uptrend since late September and just couldn’t make a higher
high. Then, last week it took in the
chops. You can see that of late it has
been inversely coorolated to TLT. I see
nothing on the horizon to change that.
Friday in the
charts.
Three more charts to watch.
https://www.zerohedge.com/the-market-ear/3-charts-we-are-watching-life-post-brutal-squeeze
The latest from
BofA.
Fundamental
Headlines
The
Economy
Last Week Review
US data
last week were neutral as were the primary indicators (one positive, one
neutral, one negative). So after two
strong weeks, we are back to the stats being directionless. That is not terrible because it implies a
soft or no landing with which I think everyone would be happy. But it also leaves open the questions as to
the likelihood that inflation being in the rear view mirror or whether we get a
soft, no or hard landing.
The
headline news of the week was (1) the FOMC meeting the outcome of which was
more dovish than anticipated and (2) the weak payrolls number which reinforced that
more neutral narrative from the FOMC meeting and raised investor hopes of no
more rate hikes. It also appears to have
voided the former prevailing narrative which saw no improvement in inflation
and a ‘higher for longer’ Fed policy.
https://www.capitalspectator.com/markets-reconsider-the-peak-rates-outlook/
The
(potential?) problem I see with this scenario is that while it may relieve upward
pressure on interest rates in the short term, it ignores the irresponsible
fiscal policy gorilla in the room.
Unfortunately, there is no sign that that negative is going away and until
it does, I believe that it is just a matter of time before rising federal
deficits and debt resume putting upward pressure on inflation.
Bottom
line: As you know, I have suspended my recession forecast. The jobs report could be a sign that a
slowdown is coming---though not enough change the forecast. As I said previously, the real outlook is ‘I
don’t have a clue’.
https://www.ft.com/content/fead0925-ecb0-46cf-b247-21f3b881df58
Lance
Roberts believes that a recession remains a high probability.
Job
And Retail Sales Data: Always Good Until They Aren't - RIA
(realinvestmentadvice.com)
I
am leaving my ‘Fed chickens out’ call in place.
Indeed, that may be happening as we speak.
Longer term, we are faced with an economy growing at well below its
historic secular rate and a base rate of inflation above 2%.
Correcting that won’t be easy. 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---which unfortunately is not apt
to happen.
The
Economy
US
International
September German factory
orders were up 0.2% versus estimates of -0.1%; the October services PMI was
48.2 versus 48.0; the October composite PMI was 45.9 versus 45.8.
The October EU
services PMI was 47.8, in line; the October composite PMI was 46.5, also in
line.
The October UK
construction PMI was 45.6 versus consensus of 46.0.
Other
Geopolitics
Game over.
Bottom line
Why short term rates are attractive.
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