Monday, October 8, 2018

Monday Morning Chartology


The Morning Call

10/8/18

The Market
         
    Technical

For the first time in three months, I actually have something to say about the S&P other than there is nothing to say.  It appears as if it might challenge the lower boundary of its very short term uptrend.  Of course, that is not the same thing as saying it is challenging it; or if it did so successfully that would necessarily be a negative.  It remains, after all, above both moving averages and well with in all three primary trends.  For the moment, my assumption remains that it will challenge the upper boundary of its long term uptrend.  Only if it successfully challenges its 100 DMA moving average will I consider that some backing and filling may need to be done before it resumes its advance on the upper boundary of its long term uptrend.



            I don’t have to repeat that the long bond had a terrible week and is now close to breaking a second major support level (lower boundary of its intermediate term trading range).  If that challenge is successful then both the short and intermediate term trends will be down, the long term will be in a trading range and the lower boundary of its long term trading range will be next.  That said, that boundary is 12 points away from current levels---which would be a huge move in bond land.  So it is certainly possible that the long bond could stabilize, build a base and then try for higher prices. 



            The dollar was off on Friday; but it had a very positive week.  As long as the dollar funding problem continues, I believe the trajectory of UUP is up.



            Looking at GLD’s chart, you would have no idea anything untoward is occurring in any of the other markets.  It remains in its own little world, drifting sideways after a major shellacking and showing little response to the moves in TLT, UUP and VIX.



            The VIX spiked last week, closing above its 100 DMA for the second day (if it remains there through the close today, it will revert to support) and right on its 200 DMA.  While not a big plus for stocks, the real negative will only come if it successfully challenges the upper boundary of its short term trading range.



    Fundamental

       Headlines

Last week’s economic data was upbeat as were the primary indicators.  So the call is easy---a plus.  Score: in the last 156 weeks, fifty-two were positive, seventy-one negative and thirty-three mixed.  It has been a while since the stats rated positively; so I don’t read a lot into this viz a viz my forecast.  As I have mentioned previously, third quarter GDP estimates are below Q2, fourth quarter is even lower and 2019 forecasts are for more slowing---heading back to the previously below average long term secular growth rate.

            Two developments occurred that will impact my and likely other’s economic models were:

(1)   the new trade treaties with Mexico/Canada and South Korea.  I will only repeat my bottom line from last week’s discussions:  [a] the paucity of change from the original NAFTA treaty suggests that, while a positive for the long term secular growth rate of the economy, it may be only marginally so, [b] removing the uncertainty of a NAFTA trade war will almost assuredly help the economy on a cyclical basis as companies can now resume investment plans that were put on hold.

That said, the more stories like this demonstrating the ancillary benefits of the new NAFTA, the more positive this treaty becomes.
           
(2)   Fed chair Powell’s hawkish comments were regard to the continuing tightening of monetary policy.  Again the bottom line:  higher rates and a shrinking monetary base [a] will only worsen the current dollar funding problem, [b] make bonds more competitive with stocks on a total return basis, [c] continue to move to price discovery, unwinding the gross misallocation and mispricing of assets.

                 More fallout more rising US interest rates.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

     International

    Other

            Italy and the EU still at odds.

What I am reading today

           

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