Friday, August 14, 2015

The Morning Call--China lets yuan rise

The Morning Call


The Market

The indices (DJIA 17408, S&P 2083) took a breather yesterday after a very volatile first three days of the trading week.  However, a big change took place in the technicals.  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}.

However, the S&P finished for the third day below [a] its 100 day moving average, reverting from support to resistance and [b] the lower boundary of its short term uptrend, re-setting it to a trading range {2043-2135}.  It remained in an intermediate term uptrend (1886-2650) and a long term uptrend (797-2145). 
Volume declined; breadth was mixed.  The VIX was down fractionally---ending below its 100 day moving average and remaining within a short term trading range, an intermediate term downtrend and a long term trading range. 

The long Treasury fell, but still finished above [a] its 100 day moving average, now support and [b] the lower boundary of its short term trading range.  However, it closed right on the lower boundary of a very short term uptrend, setting the potential that this trend could be negated.

GLD dropped slightly, remaining below its 100 day moving average and in short, intermediate and long term downtrends.  However, it ended above the upper boundary of its very short term downtrend, negating that trend and re-set to a trading range.

Oil got whacked again, ending below its 100 day moving average and within short and intermediate term downtrends.  This most recent leg down has been brutal.  We still aren’t seeing any unmitigated positives.  However, the implications for global deflation are a growing concern.

The dollar fell, remaining within short and intermediate term trading ranges but below its 100 day moving average for the second day.  If it closes there today it will revert from support to resistance. 

Bottom line: the S&P began the process of re-syncing with the DJIA by reverting its 100 day moving average to resistance and re-setting its short term trend from up to a trading range.  While clearly this process can reverse itself at any time, today the evidence on the ground suggests that a market top has been made.  Remain patient but pay close attention because the technicals are starting to make the Market news.

The long Treasury traded down, closing right on the lower boundary of its very short term uptrend; perhaps forming a challenge to the no hike/economic weakness scenario.    



            Yesterday’s US economic news was mixed in total, though the worrisome data we got earlier this week on wholesale inventories (up slightly) and sales (down big) was repeated with business inventories and sales.  The concern being that this pattern generally anticipates a decline in production.  In other news, July retail sales were ahead of estimates, but ex autos, they were in line.  Weekly jobless claims were higher than forecast.  Finally, export and import prices were both down albeit less than expectations.

Atlanta Fed lowers its forecast for third quarter GDP growth (short):

            Overseas, the Greek parliament prepared to vote on the recently negotiated bailout agreement.  However, China again held the spot light as it (1) allowed the yuan to sell off again, but (2) came out later and indicated that there was no need for further devaluation.  Yeh, right.  I don’t need to remind you that these guys lie like a cheap rug.  Furthermore, I can’t think of an instance in which a devaluing country didn’t swear up and down that it wasn’t going to devalue right up until the moment they did it.  That doesn’t mean that there are more downward adjustments in the yuan to come; it just means that we have to take such statements with a grain of salt.
            I should also mention that prior to the initial devaluation, there was general agreement among the pundits was that the yuan was roughly 10% overvalued versus the dollar.  It is now down about 4% in the last three days.  You do the math. 
            My concerns here are that (1) this devaluation process continues, indicating a weaker Chinese economy than is generally assumed which in turn puts additional pressures on global growth and the forces of deflation and (2) investors recognize the new Chinese policy for what it is---a statement that QE doesn’t work and that the other central banks trumpeting its advantages are full of s**t.

            ***overnight, (1) the Greek parliament approved the bailout deal, (2) China allowed the yuan to appreciate [it is now off 3% for the week] and (3) EU second quarter GDP was up less than anticipated with the three biggest countries [German, France, Italy] all reporting disappointing numbers,

Bottom line: while the economic dataflow has been mixed, all I hear from the media is that the economy looks great.  News flash, even if those numbers are reflective of the economy, it is not great.  In addition, there are areas of concern (1) the steady flow of anecdotal evidence which if it doesn’t reverse, will likely soon show up in the macro numbers, (2) the mounting signs of deflation [China, oil, commodities, bond prices] and (3) the overall deterioration of Market technicals. 

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.  They may not be available later on.

            Bubble worries in commercial real estate (medium):

       Investing for Survival

            The worst investment advice ever (short):

    News on Stocks in Our Portfolios

   This Week’s Data

            June business inventories grew 0.8% versus expectations of up 0.3%; but sales rose by only 0.2%.

            July PPI rose 0.3% versus expectations of up 0.2%; ex food and energy, it was up 0.3% versus estimates of up 0.1%

            Update on household debt (short):

            The latest on the Greek bailout (medium):



Update on student loans (medium):

  International War Against Radical Islam

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