The Morning Call
2/12/24
The
Market
Technical
The S&P continues
its advance undaunted. It is now at the upper boundary of its short term
uptrend. Let’s see if that is enough to slow this train down. Additional resistance
exists at the upper boundary of its intermediate term uptrend (~6600) and its
long term uptrend (too high to even mention).
Given
the economic/political/social issues that I believe are facing us, it is hard
for me to make a call for a dramatically higher Market. But historically,
stocks don’t make a new all-time high after a two year hiatus then suddenly roll
over. So it seems likely that they will climb the proverbial ‘wall of worry’
for some length of time.
I see no reason to
argue with the tape. I continue to hold the IWN trading position. That said, this
is a Market phase in which many of our holdings are likely to start trading into
their Sell Half Range. When that occurs, I will act.
S&P highs keep
on coming.
https://www.indexologyblog.com/2024/02/08/sp-500-highs-keep-coming/
The latest from
Goldman’s trading desk.
Sentiment so
bullish its bearish.
Investors
Sentiment Is So Bullish It Is Bearish - RIA (realinvestmentadvice.com)
Everyone
is in the same trade and all in.
The long bond was
down again last week, successfully challenging its 200 DMA (now resistance). The
yield curve is again inverted which seems to fly in the face of a powerful
equity market (i.e., higher short term rates are generally not good for
equities). This just adds to my consternation over the astronomical valuations
of the Mag 7 and the lack of breadth in the equity market. I am not sure what
the bond guys are thinking.
The yield curve
has never been inverted for a longer period of time.
https://twitter.com/charliebilello/status/1755812622442619269
GLD continues to
hold in there near its all-time high; but it just can’t bull its way through
that level. Indeed, it is having a problem just staying above its 50 DMA. There
is still a lot of positive chatter about gold, but until it can break above its
all-time high, I see no incentive to dabble.
While
the long term uptrend remains in place, the dollar’s short term technical
picture has been wrecked. To be sure, a gap down open of the order of magnitude
shown on the chart begs to be closed. But that will likely take a long time. Expect
a lot of directionless trading over the short to intermediate term. Clearly, there has
been no directionless trading, though last week’s pin action was exactly that. On
the other hand, it is struggling to move above its 50 DMA. How it handles that
bit of resistance will provide us with some helpful directional information.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Week in review
The stats in the
US were few and mixed with no reported primary indicators (ditto with overseas
data). This doesn’t extend or, for that matter, end the nascent trend of upbeat
reading. So the soft/no landing scenario remains the most likely forecast---which
is, of course, good news.
The potential problem
is inflation and the Fed’s reaction (in an election year). There are some analysts
that believe that the Fed has already done enough and to stay higher for longer
will push the economy into recession and even deflation. There is another camp
that thinks that the Fed will do what it does best, i.e., fold like a cheap
umbrella irrespective of the inflation risk---as opposed to yet another group
who believe it will not lower rates until the battle is won.
The cynic in me
can’t help but think that the Fed will ease whether it has conquered inflation
or not. Though clearly if it has (and I am not saying that it has), all the
better.
The Fed put is back.
https://www.ft.com/content/fa1d25a5-e796-4910-87b2-d736e8ece592
Bottom line:
(1)
I think that the inflation risks are behind
us, at least for the short term. However, longer term, I believe that the most
important economic factor is the potential [inflationary] impact of a grossly
irresponsible fiscal policy which if left unresolved will ultimately push
interest rates and inflation to higher levels, risking a tighter monetary
policy and impeding the economy’s ability to grow.
(2) The question of
recession [what kind of landing] is gaining some visibility, in my opinion: no recession.
We still are not at the point that I am ready to alter my forecast; but we are
close. Clearly, my short term outlook is improving.
The $64,000 question is ‘what does it mean for
equities?’ Judging by the recent Market’s
pin action in the face of both good and bad economic news, investors believe in
a Goldilocks outcome. Though the firmness of their conviction is likely to be
tested soon. As I noted above, the Markets techincals are getting a bit hairy;
so I expect a price retreat in the near future. How well the Market holds will
give us an indication of that view.
US
International
Other
CEO confidence the highest in two years.
https://www.axios.com/2024/02/08/ceo-confidence-rises-highest-level-in-two-years
Housing is
unaffordable to many. Monetary and fiscal policies only make it worse.
Housing
Is Unaffordable. Dems Want To Make It Worse. - RIA (realinvestmentadvice.com)
Inflation
Revised BLS CPI data is a nothingburger.
https://www.zerohedge.com/markets/bls-releases-revised-cpi-data-heres-whats-it
Recession
Recession alert weekly leading economic index.
More Q1 GDP nowcast updates.
https://www.calculatedriskblog.com/2024/02/early-gdp-tracking-solid-start-for-q1_066664716.html
China
China’s property crisis is starting to ripple across
the globe.
The
Financial System
A more sanguine view of credit card balances
and deficiencies.
Will commercial real estate trigger the next
crisis?
https://www.zerohedge.com/markets/will-commercial-real-estate-trigger-next-crisis
Bottom line
Five questions to
gauge the financial markets.
News on Stocks in Our Portfolios
Illinois Tool
Works Inc. (NYSE:ITW) declares $1.40/share quarterly
dividend, in line with previous.
What
I am reading today
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