The Morning Call
2/20/24
The
Market
Technical
What a week. Plenty
of disappointing news. But the S&P took Tuesday’s gut punch in stride,
closed that gap down open it created, bounced off the lower boundary of its very
short term uptrend, finished in the narrowing range between that very short
term lower boundary and the upper boundary of its short term uptrend and hung
tough through what many experts thought would be a very volatile (to the
downside) option expiration.
That stocks
handled this scenario as well as it did speak to the continuing underlying
strength in the Market. That said, it remains within that narrowing uptrending
wedge; and thus, there is still the possibility of breaking below the lower boundary
of its very short term uptrend and continuing lower. I don’t think that will
occur; but I wouldn’t bet money on it. Indeed, as always, my strategy is to
await follow through. I continue to hold the IWN trading position.
Bull
Trend Remains Despite Inflation Scare - RIA (realinvestmentadvice.com)
Where are the new
lows?
https://allstarcharts.com/where-are-the-new-lows/
One
day option traders suddenly became bearish.
https://www.zerohedge.com/markets/super-micro-meltdown-3rd-leg-market-melt-stool-breaks
Call options
frenzy.
https://www.zerohedge.com/the-market-ear/if-only-there-were-signs-call-options-frenzy
The long bond was
down again last week. It suggests bond investors are discounting a tighter for
longer Fed. Whether or not that is the same Goldilocks scenario that the stock
boys seem to be betting on is open to question. What isn’t is that TLT made a
new lower low, so the trend is down (higher rates).
GLD, like TLT,
made a lower low last week. You would expect that if rates were rising. It
couldn’t hold its 50 DMA and tested (unsuccessfully) its 100 DMA. Longer term, breaking
through the all-time high is now yesterday’s story. I still 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. And that has been what has been happening since
its low in late December. Last week, it easily pushed through its 50 DMA. So,
the short term trend is up---generally not a plus for stocks.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Week in review
The stats in the
US were terrible as were the primary indicators (no positive or neutral and five
negative). Making matters worse, those primary indicators showed growth slowing
and inflation rising. To be sure the CPI number was something of an anomaly;
but PPI wasn’t. And unfortunately PPI tends to foreshadow CPI. Meaning expect a
poor future CPI that isn’t an anomaly. Clearly, this is an abrupt and
disappointing break to the nascent trend of upbeat readings. Doesn’t mean that it
is over; but this is certainly no positive.
Two issues:
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 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, also suffered a setback. 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.
A more sanguine take on last week’s
retail sales number.
Another positive take on the data.
And
still no overall sign of recession.
https://www.capitalspectator.com/moderate-slowdown-expected-for-us-q1-gdp-growth/
US
International
December YoY EU
construction output was up 1.9% versus consensus of -2.3%.
Other
Recession
Another crack in the commercial real estate
market.
https://www.zerohedge.com/markets/cracks-another-corner-cre-market
Bottom line.
A macro guide to the
Mag 7.
News on Stocks in Our Portfolios
Home
Depot press release (NYSE:HD): Q4 GAAP EPS of $2.82 beats by
$0.04.
Revenue
of $34.79B (-2.9% Y/Y) beats by
$120M.
Home
Depot (NYSE:HD) declares $2.25/share quarterly
dividend, 7.7% increase from prior dividend of $2.09.
FedEx
(NYSE:FDX) declared $1.26/share quarterly
dividend, in line with previous.
What
I am reading today
A
must read article on Hayek and his critique of big government.
https://lawliberty.org/still-trudging-towards-serfdom/
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for Survival’s website (http://investingforsurvival.com/home)
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