The Morning Call
The Market
Technical
The
indices (DJIA 14930, S&P 1653) rallied yesterday. The Dow remained within its short term
trading range; while the S&P rose above the lower boundary of its short
term uptrend. I am still conflicted
about the S&P short term trend.
Trading below the lower boundary of its short term uptrend for five days
would ordinarily qualify as a confirmation of the negation of that trend. However, as I have noted, during that period,
there was virtually no follow through by the S&P to downside---which raises
questions about the validity of short term uptrend break. Yesterday’s bounce back above the lower
boundary of that trend just confuses the issue.
Contributing
to the uncertainly, the S&P also closed back above its 100 day moving
average. It remains below its 50 day
moving average; and the DJIA finished below both its 50 and 100 day moving
averages.
For
the moment, I am not re-setting the trend of the S&P. That leaves the Averages out of sync with the
50 and 100 day moving averages serving as resistance.
Volume
shrank; breadth improved. The VIX fell
but remains well within its short term trading range and directionless. The long bond also fell, closing within its
short term downtrend---which is also a weight on stock prices.
GLD
was off, but remains well above the lower boundary of its very short term
uptrend.
Bottom line:
there remains no clear trend in the Averages; though on balance there is more
negatives at the moment than positives.
Nevertheless, as I noted in yesterday’s Morning Call, the minute to
minute developments of the potential Syrian conflict are heavily influencing
prices. That leaves my conclusion
unchanged: this is a Market to be avoided unless you are a skilled trader.
Another
sentiment indicator (short):
Sell
Rosh Hashanah, buy Yom Kippur.
Fundamental
Headlines
Yesterday’s
US economic data was neutral to positive: weekly mortgage applications were up,
but the more important purchase applications were down; weekly retail sales
were mixed, the US
July trade deficit came in roughly as expected; the latest Fed Beige Book
report was a yawner; but there was a very bright spot---August car and light
truck sales were barnburners. This data
got the Market off to a good start.
Then,
Obama started ‘crawfishing’ again, this time potentially giving Himself and everyone
else a way out of the Syrian mess. In a
news conference, He said that the ‘red line’ on Syrian use of nerve gas which
He drew was really not His ‘red line’ (though it reality, it was. That is why He had to play hard ass once
nerve gas was used.) but rather it was the world community’s ‘red line’ (as
defined by a 1925 UN treaty).
This
did a couple of things. Number one, it
ostensively gave Obama the option to do nothing; that is, if He didn’t draw the
‘red line’, then His threat wasn’t specifically coming from the off ice of the president
of the US . So even if He does nothing, He can
rationalize that He is really not backing down from a threat because it wasn’t
His. Now the world knows that Obama is a
pussy and this is all bulls**t. But this
Guy is and always has been a very weak leader that values form over substance. So the world may snicker, but it allows Him
to stick His head in the sand and pretend.
More important,
it also takes off the table the necessity for congress to support the power and
authority of His office (i.e. it wasn’t His ‘red line’, He was just parroting
the terms of certain treaties). That allows
congress to vote against bombing Syria
without being an affront to His office and allows Him to self righteously
condemn (as only He can do) the rest of the world for not enforcing its own
treaty and then decline to act unilaterally.
Whether any of
this plays out, it does introduce a number of scenarios that don’t necessarily
involve military action in Syria . And I think this may have also played a role
in yesterday’s Market advance.
Of
course, this is just idle speculation on my part. But I will be watching the trend of comments
out of our elected representatives. If
they get more dovish or ambivalent, it is a may be a sign that they take
Obama’s move as a way to exit this no win dilemma gracefully. To which I would applaud.
Bottom line: the
economy continues to improve and, if Obama is trying to create an escape hatch
for Himself, then just maybe the war in the Middle East is
fading as a risk. That is all to the
positive; but there remains plenty of potential bumps in the road near term,
including the transition from easy to tight money, the continuing budget
resolution, the debt ceiling, the kick in of 2014 sequestration and the mounting
problems with Obamacare. If the recent
histories of (1) animosity within our political class and (2) the Fed’s
ineptness in managing monetary policy transitions is any guide, the odds that
most of these problems will be resolved responsibly are slim to none. I could live with them if stocks not were so
generously valued.
However, at the
moment, equities are priced for perfection.
That is not to say that perfection won’t happen; it is to say that I am
unwilling to make that bet.
The
economic issues surrounding the Syrian civil war (medium and a must read):
The
latest from David Stockman. While I
disagree with about 10% of this diatribe, it is still a must read):
Are
the BRIC’s investable (medium):
The
latest from Bill Gross (medium and another must read):
More
on valuation (medium):
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