The Morning Call
1/10/19
The
Market
Technical
The Averages
(DJIA 23879, S&P 2584) continued their rally. However, both indices finished below both
moving averages. The Dow finished in a
very short-term downtrend and a short-term trading range. The S&P is in a
short-term downtrend. So longer term, there remains a lot of work to be done to
re-establish an uptrend. For instance,
the S&P would have to successfully challenge the upper boundary of its
short-term downtrend (~2632) before it makes any sense to start thinking that
the worst is over.
Volume was up
slightly; breadth positive.
The VIX fell another
2½ %, but still ended above both moving averages and in very short-term and
short-term uptrends and remains relatively cheap. So, this chart remains a negative for stocks.
The long bond
was down slightly. However, it closed
above its 100 DMA (now support), above its 200 DMA (now support) and in short
and intermediate-term trading ranges and in a very short-term uptrend. Even though it has now been down four days in
a row, no real technical damage has been done (in other words, no big bets are
being made that rates are going to rise).
KKR cuts
leveraged loan allocation to zero.
The dollar dropped
1% and finished below the lower end of its mid-November to present
consolidation range and its 100 DMA (now support; if it remains there through
the close on Friday, it will revert to resistance). However, it remains above
its 200 DMA and in a short-term uptrend.
GLD was up, ending
above both MA’s, within a very short-term uptrend and within a short-term
trading range. It remains a healthy
chart.
Bottom line: while the indices were up
yesterday, given the positive news on both the US/China trade talks and Fed policy,
I expected better pin action. So, the relatively
paltry gain suggests that investors have already discounted some sort of
agreement in the trade talks and that the minutes from the FOMC meeting would
confirm last Friday’s Powell monetary policy reversal (see below). I think that
this supports the notion of another test of the December 26th low
(2349) or, at least, the last higher low (2446).
The long bond investors seemed to have believed
all along that the Fed would become more dovish (lower rates). Ditto for the gold bugs. The dollar is now joining the parade.
Wednesday
in the charts.
Fundamental
Headlines
Only
one minor stat was released yesterday: weekly mortgage and purchase applications
rose substantially---though seasonal factors explained much of the increase.
***overnight,
Chinese auto sales fell to a twenty-year low, Ford joins GM in big layoffs and
Macy’s gives poor forward guidance.
On the fiscal/monetary
side:
(1)
the initial US comments on the outcome of the US/China
trade talks were a bit vague but promising.
Of course, I think that most observers expected some kind of positive
verbiage. And while it sounded like the
Chinese appear ready to be more accommodative on trade issue, there was little
indication of any Chinese concessions on IP theft. Unfortunately, the Chinese version of the
results of the negotiations were even more ambiguous than our own. To be sure, we don’t know any details yet---if
there are any. So, we can’t get too far
ahead of ourselves in our assumptions,
(2)
the minutes of the last FOMC meeting pretty much
confirmed the more dovish comments from Powell last week---the bottom line being
that economic/Market conditions were such that the Fed could be patient about further
rate hikes. Not much was said about the
balance sheet unwind which, as you know, I think considerably more important than
the pricing of the Fed Funds rate. Here are
the minutes as well as a more detailed summary,
In addition, three Fed hawks made speeches yesterday
supporting the new more
dovish Fed policy.
Many pundits
are opining that this action confirms the re-establishment of a Fed ‘put’---the
Fed responding to agitated Markets with easier monetary policy.
However, this
author disagrees. I hope that he is
correct. In the article, he argues that rather
than creating a Fed/Powell ‘put’ [i.e. that it/he will loosen every time the
Market throws a hissy fit], it/he is establishing a Fed/Powell call [i.e. that
it/ he will tighten every time the Market gets too exuberant]. Clearly, it is just one man’s theory. I watch [hope] for the evidence.
Futures
pricing in pause in Fed Funds rate hikes.
Finally, Jeffery Snider’s take.
(3)
finally, Trump stormed out of a meeting with Pelosi and
Schumer regarding the funding of ‘the wall’/the government shutdown. Expect more fireworks which most likely will have
more entertainment than economic value.
Bottom
line: the economy is not getting any stronger, the constant happy talk notwithstanding. The numbers simply aren’t there; and the recent
anecdotal evidence (forward guidance) from corporations support that
notion.
It
does appear that the Fed ‘put’ is back in place, which while having little
impact on the economy, if true, will likely mean an upward bias to the Market. The keys to watch for are (1) earnings
season, which is upon us. If earnings/guidance
reflect a weaker economy than the pundits expect, that could turn the Market
narrative on its head, i.e. the economy’s strong and the Fed is easy to the
economy is weak and rates are already low.
On the other hand, if results are in line with expectations, then stock
prices will probably go higher and (2) what happens with the Fed balance
sheet. If it continues to unwind, the
Market is going nowhere.
Is China about
to open the fiscal flood gates?
Outlook
for dividends in 2019.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
jobless claims fell by 17,000 versus consensus of a 7,000 decline.
International
November Chinese
PPI rose 0.9% versus expectations of +1.6%.
https://www.zerohedge.com/news/2019-01-09/deflation-looms-china-factory-price-gains-plunge-most-2011
Other
World Bank sees
global growth slowing in 2019.
Visualizing global
government debt.
What
I am reading today
The price of greed.
Thoughts on Tuesday
nights shutdown rhetorical snoozefest.
Crypto pump and
dump schemes.
Managing your
losses.
Working hard is
bad for your investments.
The case for intellectual
humility.
Quote of the
day.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
