The Morning Call
9/19/18
The
Market
Technical
The Averages
(DJIA 26246, S&P 2904) had a great day on slightly higher volume and mixed
breadth (a bit unusual on a day of big price movement). They remain strong technically; and my
assumption is that they will challenge the upper boundaries of their long term
uptrends (29807, 3065).
The VIX fell 6 ½
%. I noted in yesterday’s Morning Call
that the VIX spiked an unusual amount (13 ½ %) for a 100 point Dow down
day. Well, it declined only half as much
(6 ½ %) yesterday in which the Dow was up 184 points. I don’t want to make too much out of two days’
trading; but if it continues to be more volatile to the upside than the
downside, it suggests a growing negative bias in the Market---which is
supported by the weak breadth of late.
The long bond was
hammered on big volume, finishing below its 200 DMA (now resistance), its 100
DMA (now resistance), and within a newly reset long term trading range (at
least officially). If there is any kind
of additional follow through today, it seems that this time the break of its
long term uptrend has happened (versus the six prior occasions this year). That has implications for the dollar (if
investors [think China] are selling bonds, they are also likely selling dollars;
on the other hand, if higher Treasury yields attract foreign capital, that
would be a plus), gold (higher interest rates are not good for gold), stocks (a
rising bond yield tends to make stocks less attractive on a total return basis)
and the economy (especially if the yield curve is flattening/inverting which it
is).
Bond
yields are becoming increasing attractive viz a viz stock yields (medium):
The dollar was
up, ending above the second very short term higher low. So it continues to be technically strong. Its pin action is not likely to change as
long as dollar funding problems continue in the emerging markets.
GLD was up, but is still the
ugliest chart on the block---though it does seem to be trying build a base.
Bottom line: the indices
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 pin action
in TLT is my main focus. Its price
performance over the last week is pointing at the end of a twenty year plus
bond bull market and that is going to force investors to re-gear their Market
assumptions and valuation models.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
economic data was mixed: month to date retail chain store sales grew slower
than in the prior week while the September housing index came in line.
The focus of the
headlines of the day returned to trade. As
China said it would, it immediately responded to Trump’s tariff hike on Chinese
goods by raising tariffs on US goods.
But like the US, it reduced the initial tariff rate.
If you believe
the Donald, that ‘automatically’ triggers an additional $267 billion in tariffs
on China. So ostensively, the US/China
trade war escalated.
However, the
Street was focused on the US and China scaling back their initial tariff rates. The reasoning being that they are olive
branches and a sign of de-escalation. We
will get a sense of that soon since US/Chinese talks are scheduled to resume
this week. That said, I remain convinced
that the Chinese will do nothing ahead of the November elections (unless, of
course, they offer some ostensively sweet deal [but decline to stop stealing
our technology] to Trump that would help the GOP in November and he accepts). The Chinese are great chess players; so I wouldn’t
be getting jiggy just yet.
Bottom
line: as you know, I have been a believer in Trump’s trade strategy (though his
style a bit boorish). Long before Trump
ever showed up on the scene, I have railed about the Chinese theft of US
technology. So I am not bothered by a
rough, tumble and extended negotiating process.
I just think that it is going to take longer than what seems to be
current consensus.
That
said, I also believe that (1) fiscal policy is digging the country into a debt hole
and (2) the Fed has so crippled price discovery that a positive resolution in
trade won’t be able to offset those factors.
The
latest results from the BofA Fund Manager Survey (medium):
News on Stocks in Our Portfolios
Microsoft (NASDAQ:MSFT) declares $0.46/share quarterly dividend, 9.5% increase from
prior dividend of $0.42.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the prior week.
The
September housing market index was reported at 67, in line with projections.
Weekly mortgage applications rose
1.6% while purchase applications were up 0.3%.
August housing starts rose 9.2%
versus expectations of up 6.0%; permits fell 5.6% versus estimates of a slight
increase.
The second quarter trade deficit
was $101.5 billion versus forecasts of $104.0 billion.
International
The
Bank of Japan met and left rates as well as its bond buying program unchanged.
The
August Japanese trade deficit was twice that of the July number.
August
UK retail prices rose 3.5% versus consensus of 3.2%.
Other
Fed
likely to raise rates next week (medium):
Nine facts about
inflation (short):
What
I am reading today
Three surprising social
security benefits (short):
The tale of Jesus’s wife
(long and very interesting):
How to do
apolitical analysis (medium):
North Korea
promises to dismantle key missile facilities (medium):
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