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Monday Morning Chartology

Feb. 01, 2021 9:30 AM ET
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The Morning Call


The Market


Last week, the S&P decisively broke a very, very short term uptrend and is now set to challenge the lower boundary of its short term uptrend. If that is successful, you can see the multiple support levels below it---both DMA’s and the lower boundary of its intermediate term uptrend. Technically speaking, I am not going to get too worried until, as and if it takes out the 200 DMA. That said, what is concerning is the ‘why’ of this selloff; that is the speculative activity of the Reddit crowd attacking the institutional shorts. To be clear, I am not in the least opposed to their effort. Indeed, I am angered by the steps being taken to shut this process down. However, it has had the effect of creating liquidity issues among some broker dealers and whenever markets start having liquidity issues, it is time to be worried about my Portfolio, whatever the merits or ethics of the Market’s participants. BE VERY CAREFUL.

How Does This All End?

TLT continues to act immune to the behavior of the equity market---I expected some kind of rally in the midst of the turmoil in equities. Not to be. Bond investors appear to be more concerned about the threat of rising inflation.

You would never know that there was any turmoil in the stock market by looking at GLD’s chart. Last week was a continuation of the short term trend lower; though as you can see, gold unsuccessfully challenged both the upper boundary of the downtrend off the August high as well as its 200 DMA. As you can also see, those two trends are converging and GLD is getting squeezed between. There should be a break one way or the other this week.

The dollar seems to be perking up a bit. Not surprising given the rise in interest rates and the volatility in the stock market. However, it has a lot of resistance to overcome to establish any kind of change in trend.

"This Could Take The Dollar Down", Alasdair Macleod Warns "There's A Real Crisis In The Winds"

Bottom line. The equity market is starting to get a bit squirrely and that is not usually a positive omen for future performance. On the other hand, with the Fed’s unrelenting pursuit of QEInfinity and the political class’s passion for throwing money at anything that walks, talks and has one, it is hard to imagine a significant selloff---unless, of course, the great unwashed masses finally realize that this insanity can’t go on. I have no idea what to do accept keep my head down, i.e., have lots of cash.

Friday in the charts.

Crypto Jumps In January As Hedgies 'Suffer' Greatest Stock Short-Squeeze In History



The Economy

Review of the Week

The US datapoints last week were overwhelmingly positive, although the primary indicators were not (two plus, three neutral, one negative). Still, I rate the week a positive. This is the second plus week in a row and that hopefully indicates that the worst is behind us. Nonetheless, I do not think that it augurs for a ‘V’ shaped recovery---just the continuation of a labored effort to improve.

Overseas, the stats were neutral. Still no help there.

For the moment, our base economic scenario remains intact---the US and global economies are improving but not at the velocity of the initial sharp rebound off the bottom. In other words, a diminishing probability of a ‘V’ shaped recovery which would lessen any potential inflationary pressures and leave the Fed free to continue QEInfinity.

Longer term, my belief is that the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which continue to become even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.



December German retail sales fell 9.6% versus estimates of down 2.6%; its January manufacturing PMI was 57.1 versus 57.0.

December EU unemployment was 8.3%, in line; its January manufacturing PMI was 54.8 versus 54.7.

The January UK manufacturing PMI was 54.1 versus consensus of 52.9.


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What I am reading today

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