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The Morning Call--Battleground

|Includes: BA, EOG Resources, Inc. (EOG)

The Morning Call

2/28/19

The Market

Technical

The Averages (DJIA 25985, S&P 2792) continued to languish yesterday---the S&P struggling with the critical 2800 level. 2800 has shown itself to be an important resistance level, so I think the odds are decent that a top has been made. That said, so far there has been no ‘sell the news’ reaction to the positive news out of the trade talks and the Fed. That all suggests to me that a battle is occurring between the bulls and bears, the outcome of which is to be determined. So, follow through remains important.

Insiders Just Sold The Most Stock In A Decade

Volume was flat; breadth weakened.

The VIX was down 3% on a down Market day, once again acting contrary to its normal inverse relationship with prices. That is supportive of its move below both MA’s and remaining within a very short term downtrend.

The long bond (120.43) declined 1 % on decent volume. While it ended above both MA’s, it is nearing a support level (~119), leaving open the question, has it made a triple top? The implication of that would be either a strengthening economy or rising inflation.

Recession Signal Getting Louder: 5-Year Yield Inverts With 3-Month Yield

The dollar rose two cents, continuing to trade in a very narrow range---indicative of little directional conviction. Still it finished above both MA’s and within a short-term uptrend.

GLD was down ¾ % but remains a strong chart.

Bottom line: the Averages did very little, with the S&P remaining below the 2800 resistance level. While neither could advance on good news (trade and Fed), there also hasn’t been any ‘sell the news’ reaction. That leaves me uncertain and awaiting follow through.

Gold’s chart remains strong though if TLT is selling off; GLD’s future performance will likely be determined by the reason (economic strength or inflation). UUP is remains stuck in a very narrow trading range.

Wednesday in the charts.

Bonds, Stocks, & Bullion Crumble Amid Kashmir, Kim, & Cohen Chaos

Fundamental

Headlines

Yesterday’s economic stats were mixed: weekly mortgage/purchase applications and January pending home sales were pluses while the December trade deficit and December factory orders were disappointing.

It was a big day in DC with multiple hearings on multiple issues:

  1. Powell gave his second day [to the house] of Humphrey Hawkins testimony in which he stayed very close to the current Fed narrative,

  1. Trade czar Lighthizer appeared before the house. His comments suggest that all the US has right now by way of an agreement is the Chinese offer to up their purchase of soybeans/oil with little give on the issues of industrial policy and IP theft.

https://www.zerohedge.com/news/2019-02-27/what-look-robert-lighthizers-testimony-china-trade-talks

Meanwhile, the trade deficit continues to grow.

https://www.zerohedge.com/news/2019-02-27/dont-show-president-trump-record-breaking-trade-deficit-chart

  1. Trump’s lawyer was also in the house, trashing Trump. I make no comments on the truth of his allegations. I leave it to FOX and CNN to do that. Whether true or not, the accusations will likely intensify the political turmoil within our ruling class. While emotions will undoubtedly run high, that might be good news in that it could keep their attention off doing more fiscal mischief.

Bottom line: the good news is that the Fed continues to deliver a Market friendly narrative. The bad news is that there is no US/North Korea deal and the chances of a comprehensive US/China deal are low. That said, I believe that an easy Fed is the more important element in the Markets’ performance; and until something occurs that illuminates the negative economic consequences of QE, it will likely remain so.

News on Stocks in Our Portfolios

EOG Resources (NYSE:EOG): Q4 Non-GAAP EPS of $1.24 misses by $0.10; GAAP EPS of $1.54 beats by $0.17.

Revenue of $4.6B (+37.7% Y/Y) beats by $130M.

Boeing signs deal for 42 777 aircraft.

https://seekingalpha.com/news/3438433-boeing-signs-deal-42-777x-planes?app=1#email_link

Economics

This Week’s Data

US

December factory orders were up 0.1% versus estimates of +0.6%.

Core US Factory Orders Suffer Worst Slump In 3 Years

January pending home sales rose 4.6% versus forecasts of up 1.0%.

Pending Home Sales Jump in January - dshort - Advisor Perspectives

Preliminary Q4 GDP was up 2.6% versus expectations of up 2.2%; the price index was up 1.8% versus consensus of +1.7%.

Q4 GDP 'Initial' Estimate: Real GDP at 2.6% - dshort - Advisor Perspectives

Weekly jobless claims rose 8,000, in line.

International

January Japanese industrial production fell 3.7% versus expectations of a 2.6% decline; January retail sales rose 0.6% versus projections of +1.0%.

The February Chinese manufacturing PMI came in at 49.2 versus consensus of 49.4.

China PMIs Plunge Despite Record Surge In Stimulus

On the other hand.

https://www.bloomberg.com/news/articles/2019-02-26/china-s-economy-sees-first-signs-of-pickup-earliest-gauges-show

Other

The social impact of the misallocation of assets.

Nomi Prins: Survival of the Richest, The March of Inequality | naked capitalism

The impact of the Fed balance sheet on bank reserves.

https://newmonetarism.blogspot.com/2019/02/balance-sheet-news_21.html

Ballooning global debt.

https://www.zerohedge.com/news/2019-02-27/ballooning-global-debt-will-undo-poverty-improvements

January median household income.

https://politicalcalculations.blogspot.com/2019/02/median-household-income-in-january-2019.html

The latest on Brexit.

https://www.zerohedge.com/news/2019-02-27/eurosceptic-leader-backs-key-brexit-demand-may-opens-door-delay

Oil spikes as OPEC sticks with its production cuts.

https://www.zerohedge.com/news/2019-02-27/wti-spikes-after-biggest-crude-draw-7-months

What I am reading today

Trump’s financials are out.

https://ftalphaville.ft.com/2019/02/27/1551285822000/Trump-s-financials-are-out/

US/North Korea talks end with no agreement. The good news is that Trump didn’t fold just to get a deal.

https://www.zerohedge.com/news/2019-02-28/sometimes-you-have-walk-hanoi-summit-collapses-trump-rebuffs-demands-sanctions

Crypto innovation needs guidance (rules).

https://www.realclearmarkets.com/articles/2019/02/27/a_case_for_rules_of_the_road_fostering_crypto_innovation_103640.html

Numbers are not reality.

https://theirrelevantinvestor.com/2019/02/27/numbers-are-not-reality/

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Disclosure: I am/we are long eog, BA.