Monday, August 8, 2016

Monday Morning Chartology

The Morning Call


The Market

            Investors got jiggy with the Friday’s employment report, pushing the S&P (and the NASDAQ composite) to new highs (but not the Dow).  Volume wasn’t that impressive but breadth did improve.  I continue to believe that the Averages are highly likely to challenge the upper boundaries of their long term uptrends; but the odds are against it being successful.

            You can see the battle going on between the buyers and sellers of the TLT---a series of higher lows and lower highs.  The only question is, who wins?  The two events playing on investors right now is (1) the major increase in QE by the Bank of England on Thursday [arguing for lower rates] and (2) the strong nonfarm payroll number on Friday [arguing for higher rates].   How this psychological standoff gets resolved should tell us something about how the bond guys are looking at the economy (continued weakness versus improvement).

            GLD did not have a good day on Friday.  It fell below the lower boundary of its very short term uptrend, having failed to make a new high at a key Fibonacci level.  Without a quick recovery, the Aggressive Growth Portfolio will likely lighten up on its GDX trading position.

            The VIX continues to gyrate above and below the lower boundary of its former short term trading range.  Friday’s plunge was pretty decisive; but I am waiting another day or so before making a call on direction---unless we get a big downside follow through today.



            The US data last week were weighted slightly to the negative side:  above estimates: June personal spending, the July ADP private payrolls report, July nonfarm payrolls, the June PCE, July vehicle sales, the July Markit manufacturing PMI and June factory orders; below estimates: weekly mortgage and purchase applications, weekly jobless claims, month to date retail chain store sales, July retail chain store sales, June personal income, the July ISM manufacturing and nonmanufacturing indices, June construction spending and the July trade deficit; in line with estimates: the July Markit services PMI.

The primary indicators were tilted to the plus column:   June personal spending (+), June factory orders (+), July nonfarm payrolls (+), June personal income (-), June construction spending (-).  However, I will note that while the June factory was better than expected (-1.5% versus -1.8%), it was still down big and worse than the May reading -1.2%.  Still in the interest of giving as much weight to recovery camp as possible, I score this week as a wash.   The tally of the last 46 weeks: thirteen have been positive to upbeat, thirty negative and three neutral.  That leaves our forecast unchanged: recession but with the warning light for change is flashing.

            Update on corporate earnings (medium):

            Overseas, the numbers couldn’t have been worse: the July Chinese Markit manufacturing and nonmanufacturing indices, the July EU Markit manufacturing and nonmanufacturing indices, the July UK Markit manufacturing and nonmanufacturing indices plus construction spending, June German factory orders, June Italian industrial production and the Japanese Markit manufacturing index were all disappointing. 

            ***overnight, July Chinese imports and exports declined more than expected; June German industrial production rose 0.8%.

            In addition, the Bank of England lowered its key interest rates and really cranked up the QE.   Since, nothing economically material will happen as a result of Brexit for at least two years, this move, I assume, is to offset downbeat psychology.  The question is, will it?  Certainly, Thursday’s pin action suggests otherwise.

            The Fed’s failure (medium):

            The Bank of Japan’s failure (medium):

            Bottom line: stocks remain grossly overvalued and would be so even if our economic forecast called for solid growth.  I believe that easy central bank monetary policy is the key to explaining this phenomenon; but until investors recognize the damage QE, ZIRP have done (asset mispricing and misallocation), the Market will remain overvalued.  Investors should use this situation to take some money off the table, either selling a portion of the positions in their winners or all of their losers or both.

            The latest from Doug Kass (medium):

            The latest from Lance Roberts (medium):

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            FactSet Research Systems (NYSE:FDS) declares $0.50/share quarterly dividend, in line with previous.


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