The Morning Call
Last week, after resetting its short term trend from up to a trading range in early March, the S&P twice tried and failed to recover the lower boundary of its former short term uptrend. While disappointing, you can see that it has plenty of support from both DMA’s before it even attempts to challenge the lower boundary of its new trading range. So, this resetting of its short term trend is more of a loss of upside momentum than a warning bell that more downside is in the offing. My Market assumption remains: ‘while valuations continue to reach historical extremes, I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’
As you can see, the bond guys have been relentless in their selling over the last two weeks. The only saving grace is that TLT challenged the lower boundary of its short term trading range on Thursday and made a recovery on Friday. Let’s see if that support level holds. If so, then the worst will be over. If not, the next visible support level is the lower boundary of its intermediate term uptrend, fourteen points ~10% lower. As I have noted previously, the deterioration of TLT’s chart is about more than technicals. It is bond investors grappling with the speed and magnitude of a potential rise in inflation. At the moment, it appears that the bet is on higher inflation/interest rates.
GLD is not faring much better than the long bond. The only difference is that gold was more extended to the upside; so, its retreat hasn’t even broken its very short term uptrend. Hence, further weakness seems reasonable especially with interest rates and the dollar rising. I know that GLD is supposed to benefit from higher inflation. But it seems like bitcoin has or is replacing it as a store of value.
After challenging the lower boundary of its short term trading range twice and failing, the dollar continues its slow recovery; even resetting its 100 DMA from resistance to support. This progress is likely a function of the US being well ahead of most of the world in its coronavirus economic recovery.
Friday in the charts.
Review of Last Two Weeks
Week of 3/8
It was a slow week of statistical releases in the US. What there was, was evenly balanced. So, it was of little informational significance. Overseas, the data flow was more normal; but it too was equally divided between the plus and minus numbers, meaning that the global economy continues to struggle toward recovery.
Week of 3/15
It was a rough week for US data reports; but the really poor numbers reflected the disruptive weather pattern in February. So, I am not counting this a negative week. Overseas witnessed a slight improvement in the overall stat count---a hopeful sign the rest of the world could be catching up to the US in its rate of economic improvement. But it is too soon to make that assumption.
The February Chicago national activity index came in at -1.09 versus +.75 reported in January.
News on Stocks in Our Portfolios
Bottom line. “If monetary policy does create economic growth, inflation and sustainable employment, then why, after more than a decade, is the Fed still having to support the financial markets?”
What I am reading today
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