The Morning Call
7/27/26
The
Market
Technical
As you can see,
the S&P busted that triangle formation, reset its 50 DMA to resistance and
made a new lower low. The bad news is that the next visible major support level
is the 100 DMA (~7178) with some minor support at ~7292 and ~7244. The good news is that the index created a gap
down open which needs to be filled plus it remains above both its 100 and 200
DMAs and is in uptrends across all timeframes.
Right now, the focus is on follow through to the downside---or lack
thereof.
Has
the selloff gone too far?
The long bond continued
its dismal performance---not surprising given oil prices (the war) and the
prospect for a new round of tariffs. There is nothing occurring that changes my
opinion that TLT is going nowhere. What
we know technically is that TLT is below all three DMAs and in downtrends
across all timeframes; so for the long bond to rise enough to even challenge
the upper boundary of its very short term uptrend, I think that it is going to take
a series of positive developments.
TIPS yields.
https://econbrowser.com/archives/2026/07/up-up-and-away-tips-yields
The bond market
just flipped to ‘a rate hike in July’.
GLD remains in a well-defined
downtrend. It is below all three DMAs
and is challenging the lower boundary of its short term uptrend---though it
looks like it is trying to hold above that level---which would be the first
good news it has had for some time.
Follow through.
The dollar continues to develop
a very well defined very short term uptrend but on a longer term basis is still
wandering in the wilderness, i.e., it has a long way to go to get out of its
short term trading range. Still it is
making progress towards that goal which I believe will help if the Fed tightens
money supply.
Friday in the charts.
https://www.zerohedge.com/markets/turbulent-week-ends-optimistic-note-hormuz-hopes-trump-tech-wreck?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTE5MTk2Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4NDkyNDEwOSwiZXhwIjoxNzg3NTE2MTA5LCJhdWQiOiJ6aC1naWZ0In0.lrarx6esQ7TSYh-BhrDRAq1T0lxFXQ8JzjdCibE9l8M
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
..
Bullish sentiment starting to wane.
https://www.bespokepremium.com/interactive/posts/think-big-blog/bullish-sentiment-starting-to-swing
The
latest for Goldman’s desk.
https://www.zerohedge.com/markets/degree-difficulty-remains-high-goldmans-pasquariello-suggests-start-nibbling-gold-watch?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTE5MjUyIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4NTE1NTgwNSwiZXhwIjoxNzg3NzQ3ODA1LCJhdWQiOiJ6aC1naWZ0In0.OfdYP7T8GAYBYFivt0cjk5L18iKDCPlGEw80O7j8uEQ
Monday morning
setup: A sharp drop in oil prices prompted by a quieter weekend for geopolitics
and a pause in MidEast hostilities also sparked a drop in bond yields and
the USD. A powerful relief rally in stocks and bonds emerged after a lull
in hostilities in the Middle East, and started a week packed with earnings and
a stack of interest-rate decisions on a positive note. As of 8.00am ET, Nasdaq
futures surged after the index logged its first back-to-back weekly declines
since March; S&P 500 futures rose 1%. After Friday's rout, all Mag 7 stocks
gained amid the relief rally in tech and AI-related stocks (Meta Platforms
+1.8%, Alphabet +1.7%, Amazon +1.4%, Tesla +1.3%, Microsoft +1%, Nvidia +0.9%,
Apple +0.1%). While Asian markets closed mixed, European stocks advanced as
broader risk sentiment gets a boost from a pullback in energy prices. Brent
crude futures for September fell 9% to around $88 a barrel (these hit $100 late
last week) after a lull in hostilities in the Middle East over the weekend.
Bond yields fell around the world, with the rate on 10-year
Treasuries declining four basis points to 4.64%. The easing came after the
US paused a nearly two-week run of strikes against Iran for a third
straight night, sending Brent 8.2% lower to $89 a barrel. The dollar fell 0.2%,
while gold hit $4,100 an ounce. UK and German 10-year borrowing costs
dropped 4-5 bps each. The Bloomberg Dollar Spot Index fell 0.2%; the Swedish
krona and Swiss franc are the best performing G-10 currencies, rising 0.4%
each. Precious metals advance, with spot silver up around 2%. Today's eco
calendar has US Durable goods and the Dallas Fed Mfg Activity (est.
2.0). A slew of earnings, including fresh clues on the pace of AI
infrastructure investment, will keep traders on their toes in coming days. On
top of that, there’s a Fed interest-rate decision and a reading of its
preferred, core PCE inflation index this week.
Turning
to earnings, of the 135 S&P 500 companies to have reported to date, 86%
have beaten analysts’ EPS forecasts, while 10% have missed. On sales, 69% of
companies have positively surprised, while 15% have missed.
Fundamental
Headlines
The
Economy
There
were very few US stats last week. What
there was, was upbeat with no inflation numbers but one negative primary datapoint.
Overseas, the data was overwhelmingly positive, dominated by the flash PMI
figures. The inflation measures were balanced
with one positive, one neutral and one negative stat.
There
is nothing in this data to alter my view of steadily growing economy. However,
the war is continuing to add to inflationary concerns. More importantly, investors are starting to
realize that war or not, oil reserves have been pulled down to a level that
they can no longer make up for the lack of new supplies. While that may be a short term issue and
hence temporary in its impact on inflation, it is still being seen as a negative---as
a potential bottleneck to production, a near term threat to consumers (i.e., gasoline
and the heating and cooling of homes) and increasing odds of a rate hike in
July. Clearly, the level of uncertainty is extremely high. So for the moment, my ‘inflation is as good as
its going to get though it may not get any worse’ position remains.
https://econbrowser.com/archives/2026/07/back-to-may-cost-of-living-wise
Another
issue that is of growing concern to investors is the intensifying discussion on
the viability of the current rate of AI spend---not just about stock prices but
about the impact of potential overspending (if there has been overspending)
would have on the economy. Trying to
figure that issue out is beyond my capabilities; but it demands that we be very
attentive to the rapidly changing AI landscape for both economic and portfolio
reasons.
How
much has big tech overspent on AI buildout?
https://mishtalk.com/economics/how-much-has-big-tech-overspent-in-ai-buildout/
Finally,
who can forget tariffs. Certainly, not
the Donald. What is amazing to me is that despite the record of failure of his
tariff regime, he continues to penalize allies and the American electorate with
his wistful devotion to said policy.
That, of course, is just what the bears need to up their case for higher
inflation/rates and slower growth.
Switzerland. Really?
Bottom
line: the economy continues to grow despite the ruling class’s best effort to
sabotage it while inflation remains well above the Fed’s target. There are
plenty of storm clouds, so caution is needed.
US
From Friday:
June new home sales were up 1.6% versus
forecasts of up 3.4%.
https://bonddad.blogspot.com/2026/07/june-new-home-sales-prices-and.html
The flash July
manufacturing PMI was 53.8 versus predictions of 54.3; the flash services PMI
was 53.6 versus 51.5; the flash composite PMI was 53.6 versus 52.3.
June
durable goods orders were up 0.3% versus consensus of +2.5%; ex
transportation, they were up 0.6% versus +0.8%.
International
May Japanese
leading economic indicators came in at 116.5 versus expectations of 116.8.
The July German
business climate index was 86.6 versus estimates of 86.0; the July current
conditions index was 86.5 versus 87.3.
Other
Overnight
News
Iran will halt its
own attacks as long as the United States does the same, a senior Iranian
official told Reuters on Sunday. The development comes as the United States
pressed pause on its bombing campaign after President Donald Trump's advisers
told him they were running out of targets and expressed worries about depleting
the U.S. arsenal.
A US appeals court
refused the DOJ’s request to let federal officials move ahead with Trump’s
mail-voting overhaul ahead of the November midterm elections.
ECB will have to
raise interest rates at least one more time to ensure that inflation risks
don’t spin out of control, Governing Council member Peter Kazimir said.
Big Companies Are
Starting to Hire Again, Defying Predictions of AI Wipeout. After a year of
holding back on new hires, companies from tech and transportation to defense
now say they need more people to work alongside AI.
Mirroring the
pre-election patterns in uncertainty, volatility, and investor flows, US
equities have typically traded sideways in the few months ahead of midterms. US
equity returns are generally modest during this part of the calendar year but
have been weaker on average in midterm election years. During midterm election
years of the past few decades, the S&P 500 has generated a median return of
0% from the start of August through Election Day. Returns have typically
improved as uncertainty subsided post-election, with the S&P 500 returning
a median of 6% in the subsequent 3 months.
Monetary
Policy
The need for a new central bank mindset.
https://thehill.com/opinion/finance/5979598-monetary-policy-paradigm-shifts/
Fiscal
Policy
The growing policy of nihilism.
https://reason.com/2026/07/23/the-dsa-maga-and-the-new-policy-nihilism/
Tariffs
Trump the humanitarian.
https://cafehayek.com/2026/07/trump-abandons-his-america-first-stance.html
Investing
Valuations are high; should you sell?
https://www.carsongroup.com/insights/blog/valuations-are-high-should-i-sell/
More on the subject.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6900766
Volatility is the price of admission.
Investing in boom times.
https://awealthofcommonsense.com/2026/07/investing-in-the-boom-times/
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-bonds-finally-bringing-heat
News on Stocks in Our Portfolios
What
I am reading today
A hopeful view of America’s youth.
How
long would it take for a hacker to break your passcode?
https://politicalcalculations.blogspot.com/2026/07/how-long-would-hacker-take-to-crack.html
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