The Morning Call
11/20/19
The
Market
Technical
The Averages (27934,
3120) drifted lower yesterday. Breadth was weak for the first time since late
October---something that shouldn’t be surprising given the Market’s overbought
condition. The VIX rose in harmony. In the short term, more downside should be
expected. Volume rose which is the opposite
of what you want in a selloff. Still,
momentum remains to the upside though those nagging October 11th gap
up opens need to be closed.
The bond market was
rose 7/8 %, finishing right on its 100 DMA (now resistance). A successful challenge of this level would suggest
a weakening economy/flight to safety.
The dollar was 1/8%,
holding right on the lower boundary of its short term uptrend.
Gold advanced nine
cents, and is that much nearer to challenging both the upper boundary of its
very short term uptrend and its 100 DMA which if successful would halt its
current downward momentum and point to a weaker economy.
The UUP, TLT and
GLD are all nearing support/resistance levels which if successfully challenged
would not only mark a change in momentum but also imply a reversal in economic
perceptions. Were TLT and GLD to
successfully challenge the aforementioned resistance levels and the dollar hold
its uptrend, it would suggest a flight to safety. If the dollar breaks down, it would imply a
weaker economy.
Tuesday
in the charts.
Fundamental
Headlines
While two of
yesterday’s economic releases were negative (the November housing index and
month to date retail chain store sales), the one positive number was October housing
starts, a primary indicator, and clearly a plus for the economy.
Overseas, September
EU construction output was very disappointing.
On trade, I found
this interesting article discussing how US companies are doing high tech research
for China. In other words, it looks like
the US has been actively (and freely) contributing to the technology transfer
to China---a circumstance that could easily remedied if Trump is serious about
halting that transfer. Ah, the blessings
of a bureaucracy.
***overnight,
China threatened retaliation over US legislation supporting protesters in Hong Kong.
On my favorite
subject, I will begin this series of articles with one from Ron Paul deriding
the Fed for its irresponsible monetary policy which has led to the misallocation
and mispricing of assets.
The first significant
manifestation in the US of the mispricing and misallocation of assets stemming
from QEInfinity was in the oil (shale) industry. Now come the ‘grave dancers’ to rationalize
the industry.
It now appears that
the retail market will become the second major casualty.
And it will only
get worse.
Bottom line: equities
are overvalued. I believe that the current
irresponsible monetary and fiscal policies are negatively impacting corporate
financial stability and earnings power.
So, that overvaluation will only get worse as long as those policies
persist. At the moment, NotQE is aiding
and abetting investors/speculators by convincing them that the Fed has their back. Herb Stein famously said that something that
can’t go on forever, won’t. While I am
not suggesting that investors run for the hills (I am ~50% invested in equities
and will remain that way), I am saying that they should have enough cash that
will allow them to feel comfortable in a major market sell off.
A preview of Q4
earnings season.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month to date retail
chain store sales declined versus the prior week.
Weekly
mortgage applications fell 2.2% but purchase applications were up 6.7%.
International
The
October Japanese trade surplus was Y17.3 billion versus estimates of Y301.3
billion.
October
German PPI was -0.2% versus consensus of 0.0%.
Other
This
is an interesting take on ‘the burden’ the national debt places on future
generations. I think what the author is
missing is that current interest rates are not based on future expectations but
on the need to chase yield in low rate environment created by an irresponsible Fed
policy.
Democrats
tax proposal would fall disproportionally on blue states.
What
I am reading today
The anniversary of the
Gettysburg Address.
Is bitcoin really an uncorrelated safe
haven?
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