Wednesday, September 12, 2018

The Morning Call--Is China sounding reasonable for real?


The Morning Call

9/12/18

The Market
         
    Technical

The Averages (DJIA 25971, S&P 2887) rallied in unison yesterday on higher volume and an improvement in breadth.  They remain strong technically; and my assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065).

The VIX was down 6 ½ %, ending its 200 DMA (now resistance) and back below its 100 DMA only days after it confirmed an upside break (now support; if it remains there through the close on Thursday, it will revert to resistance).  After making an attempt to trade into the upper values of its short term trading range, it now appears to be heading for the lower level of this range. 

TLT was beaten like a rented mule, closing below its 200 DMA (now resistance) and back below its 100 DMA (now support; if it remains there through the close on Thursday, it will revert to resistance), the lower boundary of its long term uptrend (if it remains there through the close next Monday, it will reset to a trading range) and, as a result, outside that pennant formation (making it the sixth such occurrence this year  Clearly, TLT is at a potentially critical level.  All I can do is wait for follow through.

The dollar was up fractionally, remaining technically strong.  That is not likely to change as long as dollar funding problems continue in the emerging markets.
                       
           GLD was up fractionally but continues to have the ugliest chart on the block.
               
          Bottom line: the indices traded back in harmony and remain technically strong. I continue to believe that they will challenge the upper boundaries of their long term uptrends. 

The dollar will likely remain strong until the dollar funding problems are resolved. 

The bond crowd is clearly vacillating over the long term direction of interest rates; and I have no idea what it will decide.  That said, the successful challenge of TLT’s long term uptrend will be significant, technically speaking.  And if it occurs, that will likely provide additional strength to the dollar and weakness in GLD.

Yesterday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic stats were not promising: month to date retail chain store sales growth slowed from the prior week while July wholesale inventories jumped on flat sales.

            Aside from the numbers, the two major investor concerns remain trade and the dollar funding problems.
      
            Yesterday China appeared to be changing its strategy in the current standoff by sounding reasonable.  The question is whether this is a sign that it may be crying uncle or just part of its positioning ahead of the US elections (medium):

            Concerns are increasing that the dollar funding crisis will find its way to Europe (medium):
                           
                Bottom line: if the Chinese charm offensive is for real, the results would be a clear plus for the economy. 

            It would also be a positive for the dollar funding problem (stronger global growth will help).  On the other hand, this problem is a direct result of (the misallocation of assets) Fed policy and that still has to be corrected (medium):

If not, with the stocks discounting a rosy future, I believe the risk/reward tradeoff weighs heavily on risk.  Accordingly, I want to own some cash when equities mean revert.

            August dividends by the numbers (short):

            Today’s look back at the current bull market (medium):

            The latest from Jeff Gundlach (medium):

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew slightly slower than in the prior week.

            July wholesale inventories rose 0.6% but sales were flat.

                        Weekly mortgage applications fell 1.8% while purchase applications were up 1.0%.

            August PPI came in at -0.1% versus expectations of +0.2%, ex food and energy, the reading was also -0.1% versus +0.2%.

     International

            July EU industrial production down 0.8% versus estimates of down 0.5%.

    Other

            CBO estimates the budget deficit will hit $1 trillion this fiscal year (medium):

            Is Dr. Copper suggesting that there is trouble ahead? (short):
           
Update on student loans (medium):

            Iranian sanctions and the price of oil (medium):

            However, OPEC warns of slowing demand (medium):

            Leading indicator for commercial real estate falters (short):

What I am reading today

            Three questions about the political economy (medium):

Turning nothing into something (medium):

The problem for active managers isn’t indexing (medium):


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