The Morning Call
2/26/24
The
Market
Technical
The S&P
continued its positive performance albeit with a minor hiccup. I covered most
of the action in last week’s Morning Calls. But to summarize (1) the S&P
fell out of a wedge formation but, (2) recovered from the challenge one day
longer than our time and distance discipline calls for, (3) surged above the
upper boundary of that wedge formation [the upper boundary of its short term
uptrend], (4) but did so on a huge gap up open---which as you know, I believe
has to be filled.
Overall, I think
this pin action a positive for, at least, the short term. Certainly, there is
no overhead resistance except at a truly extended level (~6700). On the other
hand, (1) we have two stocks that are nearing their Sell Half levels [though
admittedly these start to occur well before a Market peak], (2) that gap up
open may act as an anchor to upside momentum and (3) as per the links below,
Market technicians are sounding warning signals.
Bottom line. Momentum
remains to the upside, at least short term. I continue to hold the IWN trading position.
Dow divergences.
https://allstarcharts.com/140-year-old-strategy-is-working/
More
divergences.
Potential
blow off top.
https://www.zerohedge.com/markets/markets-general-dynamic-looks-potential-blow-top-nomura-warns
The latest from Goldman.
More
from Goldman.
https://www.zerohedge.com/the-market-ear/not-even-1999-yet
The long bond was up
on the week, managing to bounce off its 100 DMA. Nevertheless, it made a new
lower low; so the trend remains to the downside (higher rates).
GLD had a great
week, rallying off its 100 DMA (now support) and beginning a challenge of its
50 DMA (if it remains there through the close today, it will revert to support).
On the negative side, it made a large gap up open on Tuesday which needs to be
filled. Despite this very positive one week performance, it remains in a short
term downtrend. As has been my position for the last four months, until GLD can
break above its all-time high, I still see no reason to dabble.
While the dollar’s
long term uptrend remains in place, its 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. And that is what has been happening since its low in
late December. However, last week, the dollar’s advance showed some signs of
tiring. As it approached the upper boundary of its short t term downtrend and
both its 100 and 200 DMA’s (heavy resistance), it failed to hold the minor
uptrend off its December low. Let’s see what kind of follow through we get;
remember a weak dollar is generally good for equities.
Friday in the
charts.
https://www.zerohedge.com/markets/best-week-bullion-2024-mega-caps-melt-bad-breadth
Fundamental
Headlines
The
Economy
Week in review
It was a slow week
for economic data. The stats in the US were pretty evenly divided as were the primary
indicators (one positive, one negative). So, nothing there to prompt any kind
of change on outlook nor to relieve concerns that the brief string of upbeat
numbers may have been just that---brief. In short, no reason to back off my
recession call.
One item worth
mentioning: the minutes from the last FOMC meeting were more hawkish than anticipated.
That in turn has altered the Street narrative, (1) now at least considering
that the next Fed move could be to raise rates versus lower them, (2) certainly
modifying the rate cut story line to ‘fewer for longer’, but (3) suggesting
that my recession forecast is off base, irrespective of the data flow.
Two issues remain:
First,
at least for me, is that inflation may not be behind us as I had thought which
means the Fed (if you believe its current narrative) could stay tighter for
even longer keeping the risk of recession omnipresent for much longer.
On
the other hand, if you are a cynic like me, you can’t help but think that the
Fed will ease (for political reasons) whether it has conquered inflation or not.
Second,
I (and most of the rest of the universe) believed that we were getting clarity
on the question of recession/landing, i.e., that the economy would avoid a hard
landing. Last week’s stats certainly raises doubts.
Bottom
line:
(1)
Unfortunately, the inflation risk may not be
behind us as per my current forecast. I am not altering it yet but clearly [the Fed thinks
that it might be] it is now in question. And any further data
suggesting that it is not will likely prompt a change. That, in turn, would
amplify the impact of a grossly irresponsible fiscal policy which if left
unresolved will ultimately push interest rates and inflation to even higher
levels, risking a tighter monetary policy and impeding the economy’s ability to
grow.
(2)
Just as unfortunate, the question of
recession [what kind of landing] which appeared to be gaining clarity, remains a bit
murky. Of course, my forecast had been for some type of growth problem which I
was considering changing. Last week’s stats increases my hesitation to do so.
US
International
Other
The
Fed
The ECB can afford less restrictive stance by
summer.
Recession
Two January recession indicators.
https://econbrowser.com/archives/2024/02/cfnai-for-january-wei-for-mid-february
Weekly recession
alert indicator.
The mortgage delinquency rate fell in January.
https://www.calculatedriskblog.com/2024/02/ice-mortgage-delinquency-rate-decreased.html
Government
Shutdown
Shutdown fears grow.
https://thehill.com/homenews/house/4484048-gop-shutdown-fears-grow-we-could-be-in-a-world-of-hurt/
Bottom line
The latest from
BofA.
https://www.zerohedge.com/markets/harnett-how-trade-coming-end-us-exceptionalism
Using
macroeconomics to aid in investing.
https://disciplinefunds.com/2024/02/21/how-to-use-macroeconomic-investing-analysis/
The newest ‘it’s
different this time’ argument. As always, it’s probably not.
https://www.capitalspectator.com/will-ai-compensate-for-a-low-expected-equity-risk-premium/
News on Stocks in Our Portfolios
What
I am reading today
How to keep your memory sharp (avoid
dementia)
Want to keep your memory sharp? Here’s what science
recommends. (nationalgeographic.com)
The seven most exciting
archeological finds in 2023.
7
of the most exciting archaeological discoveries in 2023
(nationalgeographic.com)
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