Friday, September 21, 2018

The Morning Call---The Market is the story


The Morning Call

9/21/18

The Market
         
    Technical

The Averages (DJIA 26656, S&P 2930) had a big up day.  Volume was up and breadth was strong.  To say that they are strong technically is an understatement.  My assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065).

The VIX was actually up on the day, continuing its confusing, atypical non-inverse relationship with stocks.  I am not sure what to make of the VIX pin action over the last couple of weeks; but added to the rumblings in the bond market and a sudden downturn in the dollar, it seems to me that investors may be re-gearing their economic/Market models.  We need more follow through; but we also need to be aware that big changes may be in the works.

The long bond was up slightly on continuing big volume, but still finished below both moving averages and within its newly reset long term trading range.  More downside seems to be in the works.  I continue to think the break of TLT’s long term uptrend is a significant event from both a technical and fundamental standpoint.

The dollar was down markedly on volume, closing below the second lower high that I have been referring to but more importantly below its 100 DMA (now support; if it remains there through the close on Monday, it will revert to resistance).  This is the first kink in its recent strong technical performance.  As I noted above, with a number of confusing or technically negative price movements now taking place, I am not sure  what is occurring with investor economic/Market models---if in fact anything is happening other than an excess of noise. 

           GLD was up again, but is still the ugliest chart on the block---though it does seem to be trying to build a base.
               
          Bottom line: the indices remain technically strong. I continue to believe that they will challenge the upper boundaries of their long term uptrends.  Remember that today is a quad expiration which could have effected this week’s and/or today’s price performance.

         The pin action in the long bond, the dollar, the VIX and gold are all acting somewhat atypical.  That doesn’t necessarily mean something negative is occurring.  It is just that a change seems to be in the air; and I think we need to be alert to it.

            Yesterday in the charts,

    Fundamental

       Headlines

            Yesterday’s economic stats were weighed to the upside: weekly jobless claims and the Philly Fed manufacturing index were better than expected; however, August existing homes sales (primary indicator) were slightly below estimates, as were August leading indicators (primary indicator) though the July number was revised up making the two a wash.

            Bottom line: ignoring the ongoing political circus, yesterday’s news was the Market.   I am not going to repeat the above. 

Though I will repeat a portion of yesterday’s bottom line: ‘I believe that (1) fiscal policy is digging the country into such a deep debt hole and (2) the Fed has so crippled price discovery that sooner or later the securities’ markets will be penalized.’

            ***overnight, the Bank of Japan trimmed its bond purchase program.  This is the second time it has done so but says it just reflects a new policy of being more flexible.  We will see (medium):


    News on Stocks in Our Portfolios
           

Economics

   This Week’s Data

      US

     International

            The September EU composite PMI came in at 54.2 versus expectations of 54.3; the manufacturing PMI was 53.2 versus 54.2; the services PMI was 54.7 versus 54.5.

    Other

            The latest stats on household debt (medium):

What I am reading today

           

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Thursday, September 20, 2018

The Morning Call--How low can they go?


The Morning Call

9/20/18

The Market
         
    Technical

The Averages (DJIA 26405, S&P 2907) advanced yesterday but at markedly different rates (Dow up .61%, S&P up .13%; plus the NASDAQ was down).  Still volume was up and breadth finally had a cleanly positive day.  So they remain strong technically; and my assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065).

The VIX fell another 8%, catching up to the pin action in the indices.  In doing so, it is approaching the lower boundary of its short term trading range and reversing the recent trend in low volatility as stock prices rise. 

The long bond was down again on big volume, finishing below both moving averages and pretty much confirming Monday’s break of the long term uptrend.  While the lower boundary of its intermediate term trading range is only a couple of points away, given the length the pennant formation that was negated when TLT broke the lower boundary of its uptrend more downside should be expected.  To that end, the new lower boundary of its new long term trading range is 16+ points lower.  Finally, as I have noted repeatedly, I think this a significant event; not just from a technical standpoint, but the fundamental implications of noticeably higher interest rates on almost all asset classes.  It would also be the second sign (the dollar funding problem being the first) of the undoing of the mispricing and misallocation of assets.

The dollar was down fractionally, but still ended above the second very short term higher low.  So it continues to be technically strong.  Its pin action is not likely to change as long as dollar funding problems continue in the emerging markets.
                       
                        ***overnight, the dollar is falling


           GLD was up again (surprise, surprise), but is still the ugliest chart on the block---though it does seem to be trying to build a base.
               
          Bottom line: the indices remain technically strong. I continue to believe that they will challenge the upper boundaries of their long term uptrends. 

         The dollar will likely remain strong until the dollar funding problems are resolved. 

The pin action in TLT remains my main focus.  It appears to have broken a twenty year plus long term uptrend which, as I noted above, has potentially significant fundamental as well as technical implications---not all of which are positive.

Yesterday in the charts.
           
    Fundamental

       Headlines

            Yesterday’s economic stats were somewhat positive: weekly mortgage/purchase applications and the second quarter trade deficit were better than expected while August housing starts were up but building permits down.

            The morons in our ruling class held most of yesterday’s headlines.  I don’t have the words to express just how far I believe that our political process has descended into the toilet.  Ultimately, we will all be hurt whichever side of the political spectrum we are on.

            Putting the political process aside, there are two more easily quantifiable problems created by our ruling class---which I have harped on endlessly are:
           
(1)   putting our heads in the sand about the national debt is not a solution (medium):

(2)   central bankers have planted the seeds of the next financial crisis (medium):

            The Fed and the yield curve (medium):


                        Bottom line:  irrespective of whether the DOJ/FBI emails/memos are redacted, what our president’s d**k looks like or how deep in sewer our political class will go to advance their agenda, I believe that (1) fiscal policy is digging the country into such a deep debt hole and (2) the Fed has so crippled price discovery that sooner or later the securities’ markets will be penalized.

               ***overnight, Turkey’s new economic plan (medium):

                    ***China said that it is planning to cut the average tariff rates on many products             its major trading partners.

    News on Stocks in Our Portfolios
 
           
Economics

   This Week’s Data

      US

            Weekly jobless claims fell 3,000 versus expectations of a rise of 6,000.

            The September Philadelphia Fed manufacturing index came in at 22.9 versus estimates of 19.6.

     International

    Other
              
               Iranian oil sanctions appear to be working (medium):

               August architectural billings rebound (short):

              

What I am reading today

           

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Wednesday, September 19, 2018

The Morning Call--An olive branch?


The Morning Call

9/19/18

The Market
         
    Technical
                 
The Averages (DJIA 26246, S&P 2904) had a great day on slightly higher volume and mixed breadth (a bit unusual on a day of big price movement).  They remain strong technically; and my assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065).

The VIX fell 6 ½ %.  I noted in yesterday’s Morning Call that the VIX spiked an unusual amount (13 ½ %) for a 100 point Dow down day.  Well, it declined only half as much (6 ½ %) yesterday in which the Dow was up 184 points.  I don’t want to make too much out of two days’ trading; but if it continues to be more volatile to the upside than the downside, it suggests a growing negative bias in the Market---which is supported by the weak breadth of late.

The long bond was hammered on big volume, finishing below its 200 DMA (now resistance), its 100 DMA (now resistance), and within a newly reset long term trading range (at least officially).  If there is any kind of additional follow through today, it seems that this time the break of its long term uptrend has happened (versus the six prior occasions this year).  That has implications for the dollar (if investors [think China] are selling bonds, they are also likely selling dollars; on the other hand, if higher Treasury yields attract foreign capital, that would be a plus), gold (higher interest rates are not good for gold), stocks (a rising bond yield tends to make stocks less attractive on a total return basis) and the economy (especially if the yield curve is flattening/inverting which it is).

            Bond yields are becoming increasing attractive viz a viz stock yields (medium):

The dollar was up, ending above the second very short term higher low.  So it continues to be technically strong.  Its pin action is not likely to change as long as dollar funding problems continue in the emerging markets.
                       

           GLD was up, but is still the ugliest chart on the block---though it does seem to be trying build a base.
               
          Bottom line: the indices remain technically strong. I continue to believe that they will challenge the upper boundaries of their long term uptrends. 

         The dollar will likely remain strong until the dollar funding problems are resolved. 

The pin action in TLT is my main focus.  Its price performance over the last week is pointing at the end of a twenty year plus bond bull market and that is going to force investors to re-gear their Market assumptions and valuation models.

            Tuesday in the charts.

    Fundamental

       Headlines

Yesterday’s economic data was mixed: month to date retail chain store sales grew slower than in the prior week while the September housing index came in line.

The focus of the headlines of the day returned to trade.  As China said it would, it immediately responded to Trump’s tariff hike on Chinese goods by raising tariffs on US goods.  But like the US, it reduced the initial tariff rate. 

If you believe the Donald, that ‘automatically’ triggers an additional $267 billion in tariffs on China.  So ostensively, the US/China trade war escalated. 

However, the Street was focused on the US and China scaling back their initial tariff rates.  The reasoning being that they are olive branches and a sign of de-escalation.  We will get a sense of that soon since US/Chinese talks are scheduled to resume this week.  That said, I remain convinced that the Chinese will do nothing ahead of the November elections (unless, of course, they offer some ostensively sweet deal [but decline to stop stealing our technology] to Trump that would help the GOP in November and he accepts).  The Chinese are great chess players; so I wouldn’t be getting jiggy just yet.

            Bottom line: as you know, I have been a believer in Trump’s trade strategy (though his style a bit boorish).  Long before Trump ever showed up on the scene, I have railed about the Chinese theft of US technology.  So I am not bothered by a rough, tumble and extended negotiating process.  I just think that it is going to take longer than what seems to be current consensus.

            That said, I also believe that (1) fiscal policy is digging the country into a debt hole and (2) the Fed has so crippled price discovery that a positive resolution in trade won’t be able to offset those factors.    

            The latest results from the BofA Fund Manager Survey (medium):

    News on Stocks in Our Portfolios
 
Microsoft (NASDAQ:MSFT) declares $0.46/share quarterly dividend, 9.5% increase from prior dividend of $0.42.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew slower than in the prior week.

            The September housing market index was reported at 67, in line with projections.

            Weekly mortgage applications rose 1.6% while purchase applications were up 0.3%.

             August housing starts rose 9.2% versus expectations of up 6.0%; permits fell 5.6% versus estimates of a slight increase.

             The second quarter trade deficit was $101.5 billion versus forecasts of $104.0 billion.

     International

            The Bank of Japan met and left rates as well as its bond buying program unchanged.

            The August Japanese trade deficit was twice that of the July number.

            August UK retail prices rose 3.5% versus consensus of 3.2%.

    Other

            Fed likely to raise rates next week (medium):

                Nine facts about inflation (short):

What I am reading today

            Three surprising social security benefits (short):

                The tale of Jesus’s wife (long and very interesting):
           
How to do apolitical analysis (medium):
           
North Korea promises to dismantle key missile facilities (medium):


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an

Tuesday, September 18, 2018

The Morning Call---Trump ups the ante, Markets snooze


The Morning Call

9/18/18

The Market
         
    Technical

The Averages (DJIA 26062, S&P 2888) retreated yesterday on flat volume and mixed breadth.  However, they remain strong technically; and my assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065).

The VIX spiked 13 ½ %---a lot more than normally expected on a day in which the Dow is down 100 points.  In doing so, it ended back above its 100 DMA (now resistance; if it remains there through the close on Wednesday, it will revert to support) but remained below its 200 DMA (now resistance). This see sawing around the middle of its short term trading range as stock prices are rising is making it less valuable as a directional indicator. 

The long bond was unchanged, finishing below its 200 DMA (now resistance), its 100 DMA (now resistance), and the lower boundary of its long term uptrend for a fifth day, resetting to trading range (at least officially).  As I noted several times last week, TLT has already challenged, some successfully, this boundary a number of times over the last twelve months and subsequently regained the lower boundary of its long term uptrend.  Given this poor recent record of marking the break of the TLT long term uptrend, my reset of trend call is a weak one.  I am waiting for a longer follow through than normal before concluding that TLT’s long term uptrend is over.

The dollar fell, but remained above the second very short term higher.  So it continues to be technically strong and.  Its pin action is not likely to change as long as dollar funding problems continue in the emerging markets.
                       

           GLD was up, but is still the ugliest chart on the block.
               
          Bottom line: the indices remain technically strong. I continue to believe that they will challenge the upper boundaries of their long term uptrends. 

The dollar will likely remain strong until the dollar funding problems are resolved. 

The pin action in TLT is my main focus.  Even though I am being cautious in calling a break in its long term uptrend, it is still a break.  And if it is indeed marking the end of the huge bull market (declining interest rates) in bonds, there are significant implications in all the other Markets. 

            Yesterday in the charts.

    Fundamental

       Headlines

We started the week with a poor datapoint: the NY Fed’s September manufacturing index came in well below estimates.

Investors remain focused on the emerging markets dollar funding problem---here is a good discussion of it happened: (medium):
      
            As had been anticipated, Trump upped the ante in the trade dispute with China.  Last night, he imposed tariffs on $200 billion of imported Chinese goods.  Of note (1) the tariffs start at 10% but will rise to 25% in January 2019 if no progress is made.  From a macroeconomic point of view that would add only single digit tens of a percent to CPI.  So this is not a punishing move for the US consumer, (2) about $180 million in imports were actually removed from the original list, (3) Trump threatened to add another $267 billion in tariffs if China retaliates and (4) the Chinese immediate response was fairly calm.

            Part of the problem is the Chinese refusal to negotiate; most likely their motive is to wait to see the mid-term election results---which could determine how strong a hand Trump has to play (an expression of disapproval from the electorate could not only result in a change of control in the house but weaken his moral authority).  So the ‘trade war’ with China likely isn’t going anywhere until after November 7th.

Here is Goldman’s take (medium):

           Bottom line: we keep getting reminded that the economy is not as strong as Market narrative portrays---that will eventually show up is disappointing earnings.   We keep getting reminded that the Fed’s unwinding of QE is causing problems for weak credit borrowers as they struggle to service loans that they shouldn’t have taken out in the first place---that eventually will show up strained bank balance sheets/liquidity and slowing US overseas sales.  We keep getting reminded that the trade issues are not going away anytime soon---that eventually will show up in slower economic growth if not resolved.  None of these circumstances need be ruinous to the economy.  But eventually they will likely alert investors that they are paying too much for future earnings. 

           I believe the risk/reward tradeoff in equity prices weighs heavily on risk.  Accordingly, I want to own some cash when equities mean revert.

            A recovery based debt funding isn’t a recovery at all (medium):

            Stock valuation hinges on interest rates and inflation (medium):

            Today’s look back at the financial crisis (medium):

            The latest from David Stockman (medium):

    News on Stocks in Our Portfolios
 
Mastercard (NYSE:MA) declares $0.25/share quarterly dividend, in line with previous.
           
Oracle (NYSE:ORCL): Q1 Non-GAAP EPS of $0.71 beats by $0.02.
Revenue of $9.19B (+1.0% Y/Y) misses by $120M.

Oracle (NYSE:ORCL) declares $0.19/share quarterly dividend, in line with previous.
General Mills (NYSE:GIS): Q1 Non-GAAP EPS of $0.71 beats by $0.07; GAAP EPS of $0.65.
Revenue of $4.09B (+8.5% Y/Y) misses by $30M.


Economics

   This Week’s Data

      US

     International

    Other

            The latest on student loans (medium):

            The latest look at the big four economic indicators (medium):
           
Hotel occupancy rates are declining (short):

What I am reading today

            Beware of those selling private equity funds (medium):

            Waffle House and risk management (medium):

            Quote of the day (short):

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Monday, September 17, 2018

Monday Morning Chartology


The Morning Call

9/17/18

The Market
         
    Technical

              Nothing in the S&P’s chart even hints that it won’t challenge the upper boundary of its long term uptrend.
                                


              The long bond had a bad week and is now on the cusp of breaking a long term uptrend that is twenty plus years old.  Under my time and distance discipline, that challenge becomes successful today if TLT can’t regain the lower boundary of that long term uptrend.  That said, as you can see, it has unsuccessfully challenged this boundary six times this year alone---though, to be sure, several of those challenges lasted longer than normal.  This is by far the most important chart to watch at the moment because of the economic and Market implications of a break of that uptrend which would presage a move towards much higher in rates.



             The dollar also had a rough week but managed to bounce on Friday on big volume, making a second higher low.  Viz a viz its moving averages and its short term uptrend, it remains strong technically.  As you know, I believe that it will continue to do so as long as dollar funding problems persist.



             This would be laughable if it weren’t so sad.  Clearly, gold investors believe interest rates are going higher.



            The VIX traded back below its 100 and 200 DMA’s last week and appears headed for another challenge of the lower boundary of its short term trading range.  It is supporting a move higher in equities.



    Fundamental

       Headlines

            It keeps getting worse in Turkey (medium):

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            The September NY Fed manufacturing index was reported at 19 versus expectations of 23.

     International

    Other

What I am reading today

           

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