Tuesday, September 11, 2018

The Morning Call--Market schizophrenia continues


The Morning Call

9/11/18

The Market
         
    Technical

The Averages (DJIA 25857, S&P 2877) turned in a mixed day on lower volume and weak breadth.  However, the Averages 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, but remained above its 100 DMA (now support).  However, it ended back below its 200 DMA, negating Friday’s break.  That returns the VIX to a neutral position roughly in the middle of its short term trading range. 

TLT recovered, remaining below its 200 DMA for a second day (now support; if it remains there through the close tomorrow, it will revert to resistance).  However, it ended back above (1) its 100 DMA [negating Friday’s break] and (2) the lower boundary of its long term uptrend [negating Friday’s break and making it the fifth such occurrence in the last year] and back within the steadily narrowing pennant formation marked by the upper boundary of its short term downtrend and the lower boundary of its long term uptrend.  Clearly, TLT is at a potentially critical level.  All I can do is wait for follow through.

The dollar was down fractionally, but remains technically strong.  That is not likely to change as long as dollar funding problems continue in the emerging markets.
                       
           GLD was down and continues to have the ugliest chart on the block.
               
          Bottom line: while last week’s schizophrenic trading in the Averages continued yesterday, they remain strong and 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

            No US economic data releases yesterday.  Overseas, the August Chinese trade surplus with the US, its PPI and CPI were disappointing while second quarter Japanese GDP was very upbeat.

            Tariffs and currency problems in the emerging market remain foremost among investor concerns, though yesterday’s pin action suggests that most of those worries are already in the price of equities.   In addition, this week will mark the ten year anniversary of the beginning of the 2008/2009 bear market.  So expect lots of looking back.  Here is yesterday’s sample:


                        ***overnight, China asked the WTO for authority to impose trade sanction on the US.

                Bottom line: the S&P has quadrupled since its 2009 low; it is 69% above its my Valuation Model’s 2018 year end Fair Value and is only 6% from the upper boundary of its long term uptrend.  I find that math pretty compelling.  There is simply too much price risk not to own some cash when equities mean revert.
               
            If you own bonds or bond ETFs, you should read this article of liquidity in the bond market. (medium):

    News on Stocks in Our Portfolios
 
           
Economics

   This Week’s Data

      US
               
              The August small business confidence index was reported at 108.8 versus consensus of 108.1

     International



    Other

            The Fed is becoming less predictable (medium):

            The July Black Knight mortgage monitor (short):

            Update on US consumer credit (short):

            Philly Fed new orders versus prices paid (medium):

Ray Dalio on understanding a debt crisis (medium):

What I am reading today

            Equal weighting eliminates concentration risk (medium):

            Crypto wipeout deepens (medium):
 
            The money game and the human brain (medium):

            White House trying to schedule a second Trump/Un meeting (medium):
           

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