Monday, May 23, 2016

Monday Morning Chartology + rehash of last week

The Morning Call


Even though I have been AOL for the last two weeks, I have decided that a little beach time is in order.  So I will be gone this week, back on 5/31.  As always, I will have my computer and will stay in contact if events warrant.

The Market

       Monday Morning Chartology

            The S&P is in a very short term downtrend and is hovering above the lower boundary of its short term trading range which also is very near the neckline of the developing head and shoulders.  As long as that level holds, my focus is on the upside.  A break and we need to start looking for support.

            The long Treasury continues its sideways trading---likely reflecting investor uncertainty over the economy and Fed policy.

            Gold took a hit last week as the odds of a June rate hike increased.  This chart will change at the close today, absent a big recovery.  The Fibonacci level immediately below current prices will become an even more important support level.

            The VIX continues to trade like it has made a bottom---not good for stocks.


            Last week’s economic data was something of a mixed bag; but overall, I score it as a plus.  First, overall, the numbers were negative: above estimates: April existing home sales, April industrial production and April housing starts; below estimates: the May Philly and NY Fed manufacturing indices, weekly mortgage and purchase applications, weekly jobless claims, month to date retail chain store sales, April CPI and the May housing index; in line with estimates: the April/March leading economic indicators and the April Chicago national activity index.

            However, the primary indicators were not only numerous but largely upbeat: April existing home sales (+), April industrial production (+), April housing starts (+) and April leading economic indicators (0).  The score: in the last 36 weeks, nine have been positive to upbeat, twenty six negative and one neutral.

Clearly this was the strongest week for this data set in the last eight months; and it follows on another positive week.  While this performance is not enough to alter a forecast, it is certainly sufficient to put me on alert that the US may avoid a recession after all.

Overseas, April Chinese credit growth, industrial production, retail sales and fixed asset investment came in below estimates while housing prices soared (not a good combination) and first quarter Japanese GDP came in better than expected.  So little help for our economy from abroad.

***overnight, April Japanese PMI was below forecast while the EU flash PMI was the lowest in sixteen months.  In addition, the US issued another warning to Japan to cease intervening in the currency markets.

            Of course, even if the US does miraculously escape a downturn that still wouldn’t change the underlying theme of our forecast for the last five years: a sluggish economy held back by too much government spending, too high taxes, too much regulation and a Fed that couldn’t find its own ass with a pair deer antlers.

            And speaking of the Fed (and I wish that I weren’t), it did more of its bobbing and weaving last week with several members emphasizing that a June rate hike was on the table.  I don’t know if you are tired of the on-the-one-hand, on-the-other-hand unproductive mewing, but I sure am. 

My bottom line here is that I still don’t think that a rate increase is going to happen: but even if it does, it will have only a minor impact on the economy.  I have said this repeatedly, but I will again: (except for QE1), all the money that the Fed has thrown at the economy has done very little to improve it, so its absence will do very little to harm it. 

Even if the economy does manage to stay on the plus side, (1) it will be more about the productivity and hard work of American businesses and labor than a bunch of ivory tower eggheads who have achieved an excessively overrated reputation with the media and (2) it won’t be a plus by much and will still be unable to grow at historical rates as a result of all the aforementioned problems, not the least of which is the Fed.

That said, I will repeat the second part of my thesis; which is that because all the QE’s have had an enormously positive effect on the Market (the mispricing and misallocation of assets), tighter money will likely have an equal and opposite impact on it.    So if the Fed does take another step in June to normalize rates, fasten your seat belts because the ride is about to get rough.  The big question is, will the Market decline make economic conditions worse?
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   This Week’s Data


            New info on the oil glut (medium):

            Rising risk of a trade war (medium):



Occupation most cited in Panama Papers (medium):

  International War Against Radical Islam

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