The Morning Call
8/12/15
The
Market
Technical
Yesterday, the
indices (DJIA 17402, S&P 2084) reversed Monday’s stellar pin action. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] slightly above the
lower boundary of its recently re-set short term trading range {17385-18295},
[c] in an intermediate term trading range {15842-18295} and [d] in a long term
uptrend {5369-19241}.
The S&P
finished back below [a] its 100 day moving average, re-starting the challenge;
if it remains below this level though the close on Thursday, the MA will revert
from support to resistance and [b] the lower boundary of its short term
uptrend, also re-starting a challenge; if it remains below this level through the
close on Thursday, it will re-set to a trading range. For the moment, it remains in uptrends
across all timeframes (2102-3031, 1884-2648, 797-2145).
Volume rose
fractionally; breadth was terrible. The
VIX was up 12%---but still ended below its 100 day moving average and remained
within a short term trading range, an intermediate term downtrend and a long
term trading range.
More divergences
(medium):
The long Treasury
was up 1.5%, finishing above [a] its 100 day moving average, now support [b]
the lower boundary of its short term trading range and [c] the lower boundary
of a very short term uptrend.
GLD was up for
the fifth day in a row, but remained below its 100 day moving average and in
downtrends across all timeframes. However, it closed right on the upper
boundary of its very short term downtrend.
If it successfully challenges this boundary, there is a small chance
that GLD has found a bottom.
Oil was off 3%, ending
below its 100 day moving average and within short and intermediate term
downtrends. The dollar was unchanged, remaining above its 100 day moving
average and within short and intermediate term trading ranges.
Bottom line: amidst
the volatility, keep in mind that the key issue is how the Averages will
re-sync---will the S&P follow the Dow down or will it provide sufficient
support to enable the DJIA to recover?
That, in turn, will likely answer an even bigger question---have we seen
the top? Remain patient but pay close
attention because I still believe that the big Market news near term will
likely be told by the technicals.
The long
Treasury had another good day leaving the battlefield in control of the no
hike/economic weakness crowd. As I
suggested yesterday, that only makes sense if the more economic weakness is
coming.
Fundamental
Headlines
Yesterday’s US economic news was mixed: the July small business optimism
index was slightly ahead of forecasts, month to date retail chain store sales
increased over last week’s reading; however, second quarter nonfarm
productivity was below expectations and wholesale sales (lousy)/inventories
(well ahead of consensus) combo was not encouraging. But the anecdotal evidence is staying
negative (consumer spending expectations and freight car loadings collapsed).
That was all of secondary importance, as China devalued the yuan. As I
noted yesterday,
(1)
this is likely strong evidence that the Chinese economy
is worse than consensus believes. The
problem, of course, is that the Chinese lie about their numbers; so we have no
idea just how bad things are. However,
the fact that they have taken such an extreme move to assist their economy,
suggests that all is not well. And that,
in turn, likely spells problems for global growth,
(2)
it is also an indication that, at least, the Chinese
have come to grips with the fact that QE is a circle jerk, in this case,
specifically, that massive liquidity injections as a back door to devaluation
hasn’t, isn’t and is not likely to work in the future. The $64,000 questions are, [a] is there more
to come. [b] will other central banks follow suit and [c] if so, will that accelerate the move toward
deflation?
Five questions on the yuan
devaluation (short):
The pundits weigh in on the
yuan devaluation (medium):
More fallout from the yuan
devaluation (medium):
And
what happens to the carry trade? (medium):
***overnight,
the Chinese government allowed the yuan to drop again, then intervened to push
it back up. Confusion ensued. In the meantime, the IMF endorsed China’s
move to devalue.
On
an upbeat note, Greece and the Troika announced that they had reached a deal
for a bailout. That will eliminate, at
least in the short term, the long tail risk associated with a potential Grexit
or default.
Bottom line: the
US economic data remains mixed; while further down the food chain, the anecdotal
evidence continues to deteriorate. If
the latter trend persists, the economic weakness that it portrays will start
showing up in the macro numbers. I am
not arguing that this is going to occur, I am raising the risk that it might.
The Chinese devaluation
introduces another big unknown into the outlook. By that I mean, (1) while we believed that
the Chinese were having larger economic problems than they are reporting in the
official data, we still don’t know how bad things are. Maybe the devaluation was just a fine tuning
move. At the moment, we just don’t know,
(2) we don’t know how their major trading partners/competitors will react and
(3) will this move be the spark of recognition that QE was, is and will be a
sham and precipitate investor loss of confidence in central bankers?
I continue to believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has been a disappointment or no longer fits your
investment criteria and to trim the holding of any stock that has doubled or
more in price.
Economics
This Week’s Data
Month
to date retail chain store sales were again higher on a month over month basis.
June
wholesale inventories were up 0.9%; however, wholesale sales rose only 0.1%.
Weekly
mortgage applications rose 0.1% while purchase applications fell 4.0%.
Other
Thanks
for nothing (medium):
The
dysfunctionality of the Fed (medium):
And
the results of the ECB’s version of QE (short):
Japanese
national debt hits record high (short):
http://www.zerohedge.com/news/2015-08-11/japan-national-debt-rises-new-record-%C2%A51057224000000000
Chinese
credit demand plunges (medium):
Politics
Domestic
The rise of the
regulatory state (short):
International War Against Radical
Islam
New
documents on the Iran nuke deal (medium):
No comments:
Post a Comment