The Morning Call
2/14/18
The
Market
Technical
The indices
(DJIA 24640, S&P 2662) overcame an early decline to close up on the
day. In the process, they finished above
the upper boundaries of their very short term downtrends. If they end there today, those downtrend will
be negated. Both remain above both
moving averages and within uptrends across all major timeframes. Assuming that those very short term
downtrends are voided, the only resistance on the charts are the prior highs
(~26615/2872). Volume declined markedly and
breadth improved slightly. The technical
assumption is that long term stocks are going higher.
The VIX fell another
2 ¾ %, but is still at elevated levels---continuing to exert a negative impact
on the Market.
The long
Treasury rose an additional ½ %, finishing below both moving averages and in very
short term and short term downtrends. So
the chart is not pretty. Further, it
remains near the lower boundary of its long term uptrend, a breach of which
would clearly intensify investors’ concern about rising interest
rates/inflation
The dollar declined
½ %, negating its very short term uptrend and leaving it below both moving
averages and in an intermediate term downtrend. This remains an ugly chart.
GLD recovered ½%,
continuing the bounce off a minor support level and leaving its chart in
relatively good shape.
Bottom line: very
short term, the Averages are now testing a downtrend; a successful challenge
will eliminate all resistance save for the prior highs. At that point, the most pessimistic thing one
could say was that the indices have stabilized in a trading range. Long term, the trend is up.
TLT,
UUP and GLD are all acting like the threat of higher interest rates/inflation
are yesterday’s story.
The
question at the heart of the selloff (medium):
The
Sortino ratio (medium):
Signs
when stocks are near a bottom (medium):
Fundamental
Headlines
Yesterday’
economic news was mixed and involved tertiary indicators: the January small
business optimism index improved while month to date retail sales slowed.
That
is not to say, investors didn’t have a lot to digest as more detailed analysis
poured forth on:
(1)
the Donald’s infrastructure plan (medium):
(2)
the new budget proposal (medium):
Here is a more
positive spin on Trump’s new budget proposal.
Notice the emphasis on the spending cuts and not on increases in other
areas or their net impact on the deficit (medium):
In
addition, Trump kept up his aggressive narrative on trade; this time
threatening a ‘reciprocal tax’ [tariff] (medium):
Meanwhile,
the senate is embroiled in an intense debate over immigration for which it must
have solution by March 5th. (medium):
Last
and certainly not least, at his swearing in ceremony, new Fed chief Powell vowed
to be alert to financial stability risks (short):
Bottom line: after
reading more about the infrastructure and budget proposals, my take hasn’t
really changed: neither are likely to be enacted in anything close to their
current form; but their mere existence provides an opportunity for fiscal
mischief which is the last thing we need following the tax and debt ceiling
legislation. My complaint is an
expanding deficit and national debt at or near the end of an economic growth
cycle and its impact on inflation.
And while
investors clearly approved, the new Fed chief promising to keep Market
stability as one of the Fed’s objectives won’t help in the long run. I believe that at some point, deficit
spending and an accommodative Fed will prove a toxic brew.
Of
course, it appears that I am wrong about the impact of the tax bill; so I could
be equally wrong on this score.
The
advent of the cynical bubble (medium):
News on Stocks in Our Portfolios
T. Rowe Price (NASDAQ:TROW) declares $0.70/share quarterly dividend, 22.8% increase from
prior dividend of $0.57.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew less rapidly than in the prior week.
Weekly
mortgage applications fell 4.1% while purchase applications were down 6.0%.
January
CPI was up 0.5% versus consensus of up 0.3%; ex food and energy, it was up 0.3%
versus projections of up 0.2%.
January
retail sales fell 0.3% versus expectations of up 0.3%; ex autos, they were flat
versus an anticipated rise of 0.5%.
International
Fourth
quarter Japanese GDP was up 0.5% versus +2.0% in the prior two quarters.
Fourth
quarter EU GDP rose 2.7% while December industrial production was up 0.4%
versus forecasts of up 0.1%.
Other
Update
on household debt (medium):
America’s
transformation into an oil exporting country (short):
Austerity,
what’s it good for (short):
Demographics
and GDP (short):
The
latest from David Stockman (medium):
What
I am reading today
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