Wednesday, September 6, 2017

The Morning Call--Here comes another major growth opportunity

The Morning Call

9/6/17

The Market
         
    Technical

The indices (DJIA 21753, S&P 2457) took it in the chops yesterday on higher volume and weaker breadth.  Nevertheless both remain above their 100 and 200 day moving averages and are in uptrends across all time frames---including the S&P which ended above the lower boundary of its short term uptrend.  But both are still below the resistance offered by their former all-time highs.

The VIX (12.2) soared 22%, leaving it below the upper boundary of its short term downtrend, but back above its 100 day moving average (it reverted to resistance on Friday which is now up to question), its 200 day moving average (negating last Wednesday’s break) and the lower boundary of a developing very short term uptrend. The question as to whether or not the VIX has bottomed clearly remains open.

The long Treasury rose 1 ½ % on volume, finishing above its 100 and 200 day moving averages (both support), the lower boundaries of its short term trading range and its long term uptrend, above the resistance level marked by its August high and has now made a third short term higher high.

The dollar fell, closing in a short term downtrend and below its 100 and 200 day moving averages, in a series of six lower highs and below the lower boundary of its short term trading range (if it remains there through the end of trading on Thursday, it will reset to a downtrend.
           
 GLD had another good day, ending above the lower boundaries of its short term and very short term uptrends and above its 100 and 200 day moving averages (both support).

Bottom line: investors apparently haven’t decided whether bad news is good news as stocks reversed last week’s rise.  I am watching the indices’ August highs on the upside and the lower boundaries of their short term uptrends on the downside.

On the other hand, the unambiguous performances of TLT, GLD and UUP continue to point at a weakening economy.  I continue to be uncomfortable with the overall technical picture.
           

    Fundamental

       Headlines

            Only one US datapoint released yesterday: July factory orders were slightly worse than expected.  As an aside, there will be very few US stats reported this week.  So the news flow this week will be dominated by other factors, including:

(1)   weather: following Harvey’s destruction, Irma is now a category five hurricane and headed toward Florida.  Plus, there appears to be yet another hurricane [Jose] forming in the eastern Atlantic---thus increasing the odds of more economic growth opportunities [just kidding],

(2)   more central bank bulls**t: the latest Beige Book will be released this afternoon.  I continue to believe that this hurricane season will provide all the cover the Fed needs to avoid any further tightening moves.  Confirming that judgment, two FOMC members mad very dovish speeches yesterday.

In addition, the ECB meets on Thursday.  At the moment, investors are concerned about the ECB’s hesitancy to provide any details about the unwinding of its bond buying program.  I assume that this means that if the Fed doesn’t tighten, neither will it [any tightening absence the Fed following suit would likely result in an even stronger euro {weaker dollar} which is a major trade issue],

(3)   more political bulls**t: congress is back to entertain us.  Tax reform, the debt ceiling, hurricane relief and now DACA are on their agenda.  Good luck. 

In a related matter, the most recent round of NAFTA negotiations ended with no result.  That is not unexpected.  Trade treaties are historically very difficult on which to reach agreement.  The point being to not get too hopeful near term.

(4)   North Korea: I remember playing ‘chicken’ on the playground when I was in junior high; the game being two players stand facing each other with the feet as far apart as possible.  Then each player takes a turn sticking a knife between the feet of his opponent who then has to move one foot to the knife’s location.  This goes on as the players feet get closer and closer together until one player ‘chickens out’ or gets stuck with a knife.  It clearly wasn’t the smartest thing I ever did.

            Overseas, the August Chinese Caixin services PMI as well as the August EU services PMI came in better than anticipated; so the EU economy continues to be strongest among the major global participants.

            ***overnight, August German factory orders declined 0.7% versus forecasts of +0.2%.

Bottom line: OK, so investors are not back in the ‘everything is awesome’ mindset---at least not entirely.  That said, one day’s lousy pin action means nothing in the scheme of things. On the other hand, there a lot of factors that could weigh heavily on the Market; but only if investors allow it.    About all one can really say is that since early August investors are uneasy/uncomfortable/uncertain.   That’s short term.  Long term, the indices remain above their moving averages and within uptrends across all timeframes.  Until they move decisively below those support levels, the trend is up. 
           
            My thought for the day: manage you liabilities as intelligently as your assets.  Picking the right investments, seeing them appreciate over time, getting lucky with a big hit from time to time; that’s fun.  Saving more, optimizing insurance policies and estate plans is boring.  But it is your whole balance sheet that compounds over time, not just half of it.

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Economics

   This Week’s Data

            July factory orders fell 3.3% versus expectations of down 3.2%.

            Weekly mortgage applications rose 3.3% while purchase applications were up 1.0%.

            The July trade deficit was $43.7 billion versus estimates of $44.6 billion.

   Other

           
The benefits of a corporate tax cut (medium):
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Politics

  Domestic

Quote of the day (short):

  International War Against Radical Islam

            Just so you know (short):

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