The Morning Call
12/4/18
The
Market
Technical
The Averages
(DJIA 25826, S&P 2790) soared at the open, then drifted lower through the
day. They continue to work through some
of the technical damage to their charts: (1) the Dow traded above its 200 DMA
for the fourth day, reverting to support, (2) it also ended above its 100 DMA
[now resistance; if it remains there through the close on Wednesday, it will
revert to support], (3) the S&P traded above the upper boundary of the
developing very short term downtrend for a second day, voiding that trend, (4)
it also traded above its 200 DMA [now resistance, if it remains there through
the close on Thursday, it will revert to support]. Two other factors that should have a positive
impact on the pin action: (1) we are in
a historically strong seasonal period for stock prices and (2) both indices have
made a higher low off the late October low.
The only
negative comment that I have is that both indices gapped up at the open. You may recall that this occurred in early
November and the gap was closed within three trading days. You may
also recall that the technical necessity of filling that gap is not an argument
that the Market will resume its downtrend; it is an argument that it can’t
continue its uptrend until the gap is closed.
The VIX was down
9%, though it remains above both moving averages and in a short term uptrend. So its chart remains positive (bad for stocks).
The long bond rose
½ %, rising above the upper level of the base that it has been building. Nevertheless, it still finished below both
moving averages and in a short term downtrend; meaning that until some of these
resistance levels are successfully challenged, the assumption is that bond
prices are going lower.
That said, what
is important right now is that the short end of the yield curve is inverting---historically,
a precursor to recession.
Counterpoint.
Three
reasons to hold long bonds when short rates rise.
The dollar was up
fractionally, finishing in very short term and short term uptrends as well as
above both MA’s. In short, the chart
remains technically strong. I continue
to believe that UUP will move higher as long as the dollar funding problem
persists.
GLD traded up ¾ %,
remaining above its 100 DMA and continuing to build a base. Its chart is
getting less negative.
Bottom line: investors continued to
get jiggy with the US/Xi trade deal. I
said in the Closing Bell, I have no idea
how to be optimistic about anything coming out of the China trade talks other
than smoke and bulls**t. So far, administration
officials aside, that appears to be just what we got. That said, I can’t argue with the tape. If the Averages successfully challenge their
200 DMA, the assumption will have to be that they are headed for their all-time
highs.
Monday
in the charts.
Fundamental
Headlines
The
US stats released yesterday were mixed: the October construction spending
(primary indicator) was not good, the November manufacturing PMI was in line
and the November ISM manufacturing index was better than expected.
Overseas,
the numbers were positive: the November EU and UK manufacturing PMI’s came in above
estimates.
Of
course, investors’ focus was on the US/China trade truce (?). I opined a bit of skepticism in Monday’s
Morning Call. After another day of news flow,
I see no reason to change that judgement.
As
you know, I originally believed that Trump foreign policy objective was to overhaul
the post WWII political/trade regime. NAFTA 2.0 fell woefully short of that
goal. And this latest move with Xi
suggests that the Donald’s art of the deal strategy is to talk loudly and carry
a white flag. To be sure, if his goal
now is just stopped negotiations and returned to the former trade pattern, it
would be a short term plus for the economy in that it would eliminate
uncertainty and return the prices of imported goods to their prior (lower)
level.
But that is not
point. The Chinese have played unfairly
with respect to theft of US intellectual property and subsidizing industries
that compete with, not just US, but global companies for far too long. Trump said that he was going to put an end to
it. Giving them reprieve after reprieve
isn’t putting an end to it.
The Chinese have
a saying, roughly translated, means ‘it is your fault’---meaning if you let us
get away with breaking the rules, you have nobody to blame but yourself.
More
thoughts on the China trade deal.
And.
And
(from Doug Kass).
Confusion over the Chinese
auto tariffs.
In fact, confusion over
everything.
Bottom line: we can hope that not only
are the Donald and his minions serious about correcting current global trade
imbalances but that they have the right strategy for doing so. Grading NAFTA 2.0 and this latest move in the
China trade negotiations, I would give him/them a C-. As I noted above, this losing strategy has
the short term benefit of removing the uncertainty created by Trump’s threat
campaign in the first place. Longer term,
it will do little to improve the secular growth rate of the economy---which
after all is one of the keys to equity valuations.
Latest
on valuations.
And.
News on Stocks in Our Portfolios
Revenue of $701.4M (+8.8%
Y/Y) in-line.
Economics
This Week’s Data
US
October
construction spending declined 0.1% versus an anticipated increase of
0.3%.
The
November manufacturing PMI came in at 55.3, in line.
The
November ISM manufacturing index was reported at 59.3 versus forecasts of 57.2.
International
Other
Subprime
auto loan issuances soar.
The
Fed is trapped.
Is
it already too tight?
What
I am reading today
Even
when I lie: thoughts on the political dysfunction in the US.
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