Here is a look at the Fed and yearend, plus a note of caution from a guru.
On this day…
December 17 (King World News) – Art Cashin: On this day in 1732, a 26 year old Bostonian transplant, living in Philadelphia published a helpful calendar and counselor, which he called “Poor Richard’s Almanac.” The publication, containing pithy wisdoms like – “Early to bed early to rise makes a man healthy, wealthy and wise” – or (Washington, D.C.’s favorite), “A penny saved is a penny earned” – became an instant success in the colonies.
The revenues allowed Benjamin Franklin to retire at age 42. Since golf was not available in the neighborhood, he squandered his remaining years by discovering electricity, inventing the lightning rod, the iron stove, bifocals and the glass harmonica. The next week he developed still-standing theories on meteorology, heat absorption, electricity, and ocean currents.
In his spare time he founded the first insurance company, fire department, public hospital, public library, night patrol and first militia. Seeking a break he became colonial postmaster and civil defense chief for the French and Indian War. Tiring, he was chief delegate at the Albany conference, which organized the colonies and then was appointed chief negotiator with the British crown in London.
When negotiations failed, he returned home to help draft, and then pass the Declaration of Independence. He was then sent to Paris where he won the support of the French which event won the Revolution for the colonies. He returned home and helped draft and again pass the Constitution of the new nation. After that he did little that was important aside from a few inventions and a couple of immortal publications.
To celebrate take a high school graduate out for a flagon of ale and explain the team concept, consensus thinking and why little can be accomplished by one man alone.
The stock market didn’t quite go it alone on Monday. It got help from a variety of sources as it moved to new record levels. Continued optimism on the trade front kept a bid under the market and that was embellished by stronger than expected economic data out of China. That data raised hopes that a stalling global economy might quickly perk up as the trade truce talks hold. While the Dow joined the other indices in reaching new record highs, it lagged the others, weighed down by Boeing, which subtracted nearly 100 points from the Dow’s performance.
Throughout the day, there was speculation that Boeing might scale back, or actually suspend production of the 737 MAX. After the close, Boeing announced that they would, in fact, suspend production. That has prompted overnight commentary that the Boeing suspension could cut U.S. GDP in the first quarter of 2020 and increase unemployment with large layoffs among Boeing suppliers. If so, President Trump may push the FAA to expedite recertification.
Markets eased very slightly in the late hours of the session but held onto the bulk of their gains.
The Fed And Yearend – Some traders speculate that the Fed is very concerned about a possible yearend explosion in the repo market. That has prompted speculation that the Fed might make a massive injection of reserves. If so, it could effectively be an unintended enormous QE. We’ll keep an eye out.
A Note Of Caution From A Technical Guru – Overnight, Mark Newton of Newton Advisors, cautioned clients that the recent blow-off rally may have made the market vulnerable to a pullback. Here is a bit of what he wrote:
Yesterday’s surge has helped this parabolic rally to continue, and while overbought now, with exhaustion due this week, there hasn’t been any evidence of price reversing course. Since last year’s 12/24 bottom almost exactly one year ago, prices have risen over 36% on the SPX, a truly extraordinary feat. None of the economic data which has disappointed on the manufacturing side, nor the China trade tension and tariffs, nor earnings shortfalls have really mattered one bit.
Overall, this week should be the chance to sell into this move, for those that take Demark Exhaustion seriously, or overbought conditions, as the market nears Expiration. While certainly a strong price move, the lack of momentum being higher than November tells us that Equities are a bit “over their skiis” on this rally, to say the least. The area at 3200 extending up to 3235 “should” be tough to get immediately above and technically it should be right to sell into this move, along with buying implied volatility for a 2-3 month hold with the VIX back down under 12.50.
Sector-wise, breadth was about 2.5/1 positive yesterday but we did see some flight to Defensive sectors with Utilities and Telecom rising more than 1%, along with Energy, while Groups like Financials and Industrials lagged (Industrials was actually down on the day)
A word from the wise.
Overnight And Overseas – Asian equity markets seemed to join the global trade truce celebration. Tokyo had a moderate rally with Hong Kong, Shanghai and India all seeing rallies equal to 250 to 350 point moves in the Dow.
Europe on the other had saw their celebration yesterday and this morning are pausing to consolidate. London is fractionally lower with modest selloffs in Paris and Frankfurt.
Among other assets, Bitcoin is slightly lower, having slipped just below $7000. Gold is virtually unchanged while crude has firmed with WTO trading around 60.35. The euro is a touch firmer against the dollar and yields are a tick lower.
Consensus – Seasonal patterns suggested a mild mid-December pullback before the launch of a yearend rally. That may have been postponed by the trade truce. Let’s see what happens by week’s end.
Stick with the drill – stay wary, alert and very, very nimble.
***To listen to Adrian Day’s powerful KWN audio interview discussing the gold and silver markets and much more CLICK HERE OR ON THE IMAGE BELOW.
Gold Will Surge Well Above $2,000
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