Wednesday, October 5, 2022

The Morning Call--Peak pessimism?


The Morning Call





The Market




            Tuesday in the charts.



 Note: two observations regarding yesterday's pin action: (1) in addition to the S&P, about 75% of the stocks in our Portfolio made gap up opens on the day; about 10% had two successive days of gap up opens. That kind of action invariably reverses itself and those gaps get filled, (2) resistance exists at ~3831 on the S&P which is the downtrend off its 8/16 trading high. Until that level is successfully challenged, the current rally is nothing more than a rally in a downtrend.


            The jitters are not gone.







              The Economy




Weekly mortgage applications fell 14.2% while purchase applications                      were down 12.6%.


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


August job openings (JOLTS) totaled 10.1 million versus predictions of 10.8 million.


August factory orders were flat with July, in line; ex transportation, they were up 0.2% versus consensus of -0.6%.


The August trade balance was -$67.4 billion versus anticipated -$67.7 billion.


The September ADP private payroll report showed an increase in jobs of 208,000 versus estimates of 200,000.




The August German trade balance was E0.6 billion versus forecasts of E7.3 billion.


The final September Japanese services PMI came in at 52.2 versus projections of 51.0;    the final composite PMI was 51.0 versus 50.9; the final September German services PMI was 45.0 versus 45.4; the final composite PMI was 45.7 versus   45.9; the final September EU services PMI was 48.8 versus 48.9; the final composite PMI was 48.1 versus 48.2; the final September UK services PMI was 50.0 versus 49.2; the final composite PMI was 49.5 versus 48.4.


September UK YoY new car sales were up 4.6% versus expectations of +0.8%.




                            Update on median household income.



                            Update on business cycle indicators.



                            Currency chaos in Asia.



                            Global manufacturing PMI edges below 50.0.



            Fiscal Policy


              $600 million in covid fraud.





              UN advisor shreds Ukraine narrative.



    Bottom line


            Peak pessimism?



            Ray Dalio no longer thinks that cash is trash.



            IMF warns funds with illiquid assets pose risk to financial stability.



            BofA warns of Bear Stearns moment.



    News on Stocks in Our Portfolios



What I am reading today





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Tuesday, October 4, 2022

The Morning Call---Is it different this time?


The Morning Call





The Market




                 Monday in the charts.



I noted in yesterday’s Morning Call that stocks were very oversold, so a bounce seemed likely. Well, we got it in spades yesterday. While the S&P is back above its 6/13 low, voiding last Friday’s challenge (and to be sure, it demonstrates the strength of support at that level), I would not be chasing stocks higher. A five percent bounce off an extremely oversold Market, such as we had, is not atypical.



       Remember the June squeeze.


                       Technical green shoots.



                       Looking for a bottom.



                       Sell low, buy high.







              The Economy




                          August construction spending fell 0.7% versus expectations of -0.3%.



The final September manufacturing PMI was reported at 52.0 versus projections of 51.8.


The September ISM manufacturing index was 50.9 versus consensus of 52.2.





                          August EU PPI was 5.0% versus estimates of 4.9%.


September Japanese YoY CPI was 2.8% versus forecasts of 3.0%; YoY core CPI was 2.8%, in line.




                          Ed Yardini echoes my ‘good news is bad news’ theme.



                          More on the likely OPEC+ production cut.



                        The inevitable (EU) financial crisis.



IEA says EU faces unprecedented risk of gas shortages.



                        Plus, inflation is getting harder to combat.



            The Fed


              Fed officials beginning to disagree on the speed of tightening.



              The Bank of Japan spends $20 billion to defend the yen.





              Home prices down again in August.



     Bottom line.


Is it different this time?


            A strong dollar is not bad for equities.



            How we got to this economy/Market.



            The investor opportunity index hits a two year high.



                Time to pay the piper.



            Managing your way through a bottom.



                And what it might look like.



    News on Stocks in Our Portfolios



What I am reading today





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Monday, October 3, 2022

Monday Morning Chartology


The Morning Call





The Market




I speculated in Friday’s Morning Call that the S&P’s seeming inability to penetrate its 6/13 low could possibly mean that a double bottom was in the making. The index promptly scuttled that notion closing Friday below that level. That said, there is a time rule that must be met; so, it needs to remain there through the close on Tuesday to confirm the break. But looking ahead, were that to occur the next levels to watch are (1) the initial 50% Fibonacci retracement level [~3507], (2) the initial 61.8% Fibonacci retracement level [~3198] and (4) the newly established lower boundary of its intermediate term trading range [~2788].


From a technical standpoint the S&P remains grossly oversold---but I have been saying that for the last week and is now making a new low. Still, do not be surprised if we get a short term bounce.


That said, patience remains a virtue.


            Who is left to sell?



            The tide in liquidity is turning (must read).



            Fed ‘put’ is getting closer.




                        The risk of a crash is rising.






The long bond continued its downward journey last week though it was unable to crack through the lower boundary of its long term uptrend---which is not to suggest that it won’t. But as I said last week, I think that this level will hold. On the other hand, it is in an intermediate term downtrend, in a short term downtrend and below both DMA’s; so, momentum certainly argues to the contrary. As I also noted last week, I am not betting any money on my call. Stay tuned.


              Bonds are having their worst year ever.





Gold rallied last week, undoubtedly the result of the decline in the dollar and the slightly better price performance of the long bond. Still, there is no reason to be getting jiggy with GLD. However, as you can see, it is now in a developing pennant formation that should give us some directional information when one of those boundaries are taken out.





As I noted above, the dollar backed off last week---not particularly surprising since it was bumping up against the upper boundary of its intermediate term uptrend. Notice that it is well above the lower boundary of its very short term uptrend; meaning that it could drop almost five percent and not disrupt even its shortest term momentum. Still, it is at a level at which markets are starting to break. That may or may not mean a reversal; either way it is too soon to be making any bets on a lower dollar.


            Friday in the charts


            More charts.







              The Economy


                        Review last week


The US data last week was balanced, though the primary indicators were upbeat (two positive, three neutral, one negative). However, as I noted last week, we are in one those periods where some good news is bad news; and I think last week’s stats fall into that category. Overseas, the numbers were quite negative; and unfortunately, in this instance, bad news was bad news.






The principal headline of the week was the Bank of England throwing in the towel on QT. However, it was not just a case of another major central bank f**kup. It was forced to respond to a seize up in the UK credit markets brought on by an as yet unexplainable expansion of fiscal stimulus by the government. This series of events resulted in an explosion of volatility in the global financial markets though in the end it was directionless.


Note: over the weekend, the government appeared to be reversing some of its stimulus program.


In the end, we still don’t have the answer to my Number one question: how deeply embedded is inflation in our economy? But investors appear to the assuming the answer to question two: how firm will the Fed remain in its policy decisions to bring the inflation rate back to acceptable levels? Which is to say, they expect the Fed to hang tough to the end, i.e., until it is sure that inflation is or will return to the 2% level.


Unfortunately, that still leaves us staring at history---the Fed has never, ever, ever successfully managed a transition to normal monetary policy. So, we are faced with two scenarios (three actually if you want to believe that the Fed will successfully negotiate the return to stable monetary policy). One, it will stay too tight for too long and plunge the country into a severe recession. And two, it will chicken out before inflation is squelched---which is its historic modus operandi---leaving us the in same boat in which we started, i.e., inflation above the Fed’s mandate and the need to repeat the whole process.


You know my opinion: I don’t think that the Fed has the fortitude to hold firm in the face of a faltering economy and plunging asset prices.


As for the Market, patience remains the better part of valor.







The final September German manufacturing PMI came in at 47.8 versus estimates of 48.3; the final September EU manufacturing PMI was 48.4 versus 48.5; the final September UK manufacturing PMI was 48.4 versus 48.5.




                          Update on big four economic indicators.



              The latest Q3 nowcast.





              We haven’t yet seen as much tightening of credit as Markets think.



              Debt and why the Fed is trapped.



              The Fed is about to break the corporate bond market.



              Fed pivot likely?





              Stockman slams Washington’s Ukraine policy.



              Kissinger agrees.



     Bottom line


            When slow and boring is good.



The importance of diversification.


The dangers in averaging down in high growth stocks.


    News on Stocks in Our Portfolios


What I am reading today


            We all like a good story.



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