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Monday Morning Chartology

Dec. 07, 2020 9:19 AM ET
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The Morning Call


The Market


The S&P has now solidly challenged its all-time and reset its short term trend to up, putting it in uptrends across all timeframes and above both DMA’s. But in doing so, it has gotten severely overbought, suggesting some price weakness near term. But as I have noted, longer term there is no visible resistance for almost 1000 points.

Bear in mind that the above comments are strictly technical and, therefore, must be weighed against any fundamental (valuation) comments that I may make in the Bottom Line section.

Will there be a Santa Claus rally?


Equity put/call ratio at an extreme.

Equity Put/Call Ratio at Historical Extreme

On Friday, the long bond challenged the lower boundary of its very short term uptrend for a second time in a week. If it remains there through the close today, the very short term trend will reset to a trading range. If that happens, having already reset both DMA’s to resistance, the next support level is ~15%. How fast it gets there will likely have an impact on equity prices---I have noted that at slow rise would suggest increased economic activity (good for stocks) while a quick rise would imply rapidly rising inflation expectations (bad for stocks).

Having tested its 200 DMA two Fridays ago, GLD bounced hard last week, negating the break of that moving average. Longer term, that leaves it in uptrends across all timeframes, above its 200 DMA with the 100 DMA (now resistance) the only technical negative. However, you can clearly see that gold continues to exhibit weakness in the very short term. That keeps it a zone of uncertainty---will it push upward out of the downtrend from August or successfully challenge its 200 DMA and trend even lower? A lower dollar suggests the former, higher yields the latter.

The dollar’s chart is what really gets my attention. UUP had reset both DMA’s to resistance some time ago. Last week, it reset its short term trading range to a downtrend and its intermediate term uptrend to a trading range. That is some pretty serious technical damage. And the next visible support level is down another 5% which is a big move for the dollar. The investment implications are much like the long bond. A gradual decline can be good for stocks because it makes US goods cheaper in overseas (hence, better corporate profits). However, a spike could imply a loss of faith in the US/economy and that would be bad for stocks. Unfortunately, right now, it appears that a flush lower is happening and that is not good. But that is somewhat at odds with what is going on in the bond market. So, color me a bit confused but attentive to these two markets as signals for the equity market.

Friday in the charts.

Stocks Soar To Record Highs As Dollar Dumps After Dismal Data



The Economy

Review of last week

The stats were upbeat for the third week in a row---but this time the primary indicators were tilted to the plus side. If this trend continues for a couple more weeks, then odds of a follow through to the third quarter rebound improve. Unfortunately, there remains considerable uncertainty over a stimulus bill and lockdowns are proliferating in the holidays.

Risks of a double dip rising?

Risks of a Double Dip Rising? [upated]

In addition, the Fed released its latest Beige Book report. However, it provided little in terms of informational value with respect to a recovery.

Overseas, the indicators were very positive for a second week in a row. But we need more consistency in the trend of the data to start getting upbeat. Regrettably, the renewed lockdowns occurring across Europe don’t give much promise of steady improvement. Not helpful to our own recovery.

Whatever the shape or magnitude of the near term bounce back, I am not altering my belief that long term the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which, by the way, are becoming even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.




The latest in the Brexit negotiations.

Pound Slides As No Progress Seen In Brexit Deal Talks, 'Transition Period' Won't Be Extended

Problems with the new OPEC agreement.

The Worrying Truth About The New OPEC+ Agreement

Bottom line.

The rally in oil stocks maybe premature.

The Energy Rally Is Likely Premature

News on Stocks in Our Portfolios

What I am reading today

Quote of the day.

Quotation of the Day... - Cafe Hayek

Being a reasonable optimist (great read).

The Reasonable Optimist

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