The Morning Call
A reminder that I am taking off
today for the Labor Day Holiday and will be back Tuesday 9/3.
If action is needed, I will send a Subscriber Alert.
The Market
Technical
The
indices (DJIA 14776, S&P 1630) had a rough day. The most important technical item was the
S&P breaking below the lower boundary of its short term uptrend
(1635-1790). Under our time and distance
discipline, it must stay below its lower boundary through the close Thursday to
confirm the break. If that occurs then
it will re-set to its former short term trading range (1576-1687)---but that is
getting a bit ahead of ourselves. The
Dow remained within its short term trading range (14190-15550).
Both
of the Averages finished within their intermediate term (14657-19657, 1562-2148)
and long term uptrends (4918-17000, 715-1800); and both closed not only below
their 50 day moving averages but also below their 100 day moving
averages---though the S&P did just so.
Not a good sign.
Volume
rose; breadth was terrible. The VIX rose
12% but remains well within its short term trading range and its intermediate
term downtrend.
The
long Treasury bond broke above the upper boundary of its short term
downtrend. If it remains above that
boundary through the close Thursday, then it will re-set to a short term
trading range. In addition, it closed
just slightly below its 50 day moving average which should act as
resistance. This move is likely a flight
to safety in front of a potential war in the Middle East
and is trumping any moves related to ‘tapering’.
GLD
rose, continuing to build that very short term uptrend. Despite the fact that it remains within its
short and intermediate term downtrend, this advance has progressed sufficiently
that if GLD challenges the lower boundary of the very short term uptrend and
fails, our Portfolios will likely begin re-establishing their positions.
Bottom
line: the S&P could potentially be moving back in to unison with the DJIA,
which is not a positive. We have to wait
till the close Thursday to get confirmation, but clearly a follow through to
yesterday’s pin action would be negative for stocks. In addition, the indices taking out their 50
and 100 moving averages only points to more weakness. That said, the situation in Syria
has raised the emotion quotient in pricing considerably. So if the US lobs a couple of cruise missiles
into Syria so Obama can save face and the Russians and Iranians don’t
retaliate, then this crisis could be over quickly---which would likely be
accompanied by a rebound in stocks. How
much is the big question. In any case,
this is a Market to be avoided unless you are a trader.
Fundamental
Headlines
Yesterday’s
US economic news was uplifting: weekly retail sales were positive for the first
time in a couple of weeks, the June Case Shiller home price index was up again,
August consumer confidence was much better than anticipated as was the August
Richmond Fed manufacturing index.
Overseas, the data was just as good: German business confidence was up
and so was Chinese industrial profits.
All the makings of a positive day in the Market, right?
No, the global
markets were concerned about war in Syria
and what that might do to oil prices/availability. In addition, investors may still be in a
‘good (economic) news is bad (‘tapering’) news’ frame of mind. Whackage ensued.
Three comments:
(1)
while the whole ‘tapering’ issue has been shoved off
center stage, at least temporarily, it is not going away as a Market moving
factor, particularly among equity
investors---meaning they are still conflicted about whether or not we get
‘tapering’, whether it is sooner or later and, hence they are still uncertain
about what to do about stocks.
Complicating the issue are rumors that Larry Summers is in the lead as
heir apparent to Bernanke; and he has two things going against him [in many
investors’ minds]: [a] he is more hawkish than Bernanke and [b] he is more of a
divider than a uniter--- not a great character trait going into what will
likely be a difficult {failed} transition process. In other words, expect this to re-emerge as a
key determinant of Market direction.
The Fed’s final game (medium and a must read):
And this from
Stephan Roach on the global QE exit (medium and another must read):
(2)
September is but days away and with it comes [a] the
need for a continuing {budget} resolution by 9/30. With Obama wanting more spending {and the GOP
not} and the FY2014 sequestration kicking in, the negotiations prior to the end
of the fiscal year are apt to get a bit testy, [b] especially when the debt
ceiling is projected to be hit in mid October and Jack Lew stating on TV
yesterday that the administration didn’t intend to negotiate on this issue. Well good luck with that, Jack. The point here is that the fiscal news is
likely to be a negative for stocks.
(3)
Chuck Hagel made it clear that any US bombing of Syrian
assets was not intended to promote ‘regime change’. Well, we are all relieved
by that one. So does that mean that we
are just going to bomb some Syrian missile delivery sites and then we will call
it even and Obama gets to pretend that He is a hard ass? [I score that scenario Assad 1, Obama 0, with
the additional negative that He once again proves to Iran ,
North Korea and
all those who would do us harm that He is a pussy.] I hope that the Russians and Iranians will
decide to go along with this charade; because if they don’t [and Iran
said yesterday that it would bomb Israel
if the US bombs
Syria ], things
could get a lot messier.
Questions for Obama (short):
http://billmoyers.com/2013/08/26/questions-for-president-obama-before-he-pulls-the-trigger-on-syria/
Foreign Policy
magazine just released an article that stated that the US knew of and did nothing to stop the Iraqi’s
use of nerve gas against Iran . (must read):
More behind the scenes intrigue in Syria
(medium):
And the big
Kahuna---what this all means for the price of oil (medium):
Bottom line: I
think my conclusion yesterday remains spot on:
‘stocks are overvalued at least
as calculated by our Valuation Model.
Often, such periods of high prices can go on for an extended period of
time until some exogenous event occurs that slaps some sense into overly
optimistic investors. The recent
realization that the transition from easy to tight money was upon us has the
Markets on edge. All that it would take
is for some hedge fund with a big exposure to the ‘carry trade’ to blow up to
create that exogenous event (and with the emerging markets cratering,
the odds of this occurring have to be going up). And now we have another
potential flash point---the US Syria
I would add that
an extended period of political acrimony over spending and taxes could also
serve as the trigger/exogenous event.
To further
repeat myself, I am not suggesting that any of these will occur. I am suggesting that risk of any or all of
them happening has risen. Caution.
One
of the best articles penned by Mohamed El Erian in a long time (today’s must
read):
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