The Morning Call
8/7/15
The
Market
Technical
The indices
(DJIA 17419, S&P 2083) had a rough day.
The Dow ended [a] below its 100 and 200 day moving averages, both of
which represent resistance, [b] in a short term trading range {17385-18295},
[c] in an intermediate term trading range {15842-18295} and [d] in a long term
uptrend {5369-19175}.
For the second
time in a week, the S&P finished back below [a] its 100 day moving average;
if it remains there through the close on Monday, it will revert from support to
resistance and [b] the lower boundary of its short term uptrend; if it remains
there through the close on Monday, it will re-set to a short term trading
range. For the moment, it remains in
uptrends across all timeframes (2097-3076, 1882-2648, 797-2145).
Volume fell;
breadth was negative. Of particular
notice, the flow of funds indicator turned negative. The VIX was up 10%, but still closed below
its 100 day moving average and remained within a short term trading range, an
intermediate term downtrend and a long term trading range.
The
divergence of stocks and commodities (short):
The long
Treasury jumped, making a big reversal.
It ended back above [a] its 100 day moving average; if it remains there
through the close on Monday, it will revert from resistance to support, [b] the
upper boundary of its short term downtrend; if it remains there through the
close on Monday, it will re-set to a short term trading range and [c] the lower
boundary of a very short term uptrend, voiding Wednesday’s break.
GLD was up, but remained
below its 100 day moving average and in downtrends across all timeframes.
Oil fell, finishing
below its 100 day moving average and within short and intermediate term downtrends.
The dollar also declined, remaining above its 100 day moving average and within
short and intermediate term trading ranges.
Bottom line: the
last time the Averages were battling it out over direction, it was to the
upside. We now have the mirror
image. The only difference is that this
time the Dow is deep into multiple trend reversals. In addition, in the prior instance, investors
believed that the Fed had their back---now there is a rising awareness that the
Fed is clueless and that this could well result in trouble. That is not to say that this can’t be
reversed. Gosh only knows the trade for
the last five years has been to buy the dips.
The long
Treasury is see sawing through a crucial junction---the bond guys battling over
whether the Fed will hike or not and/or whether the global economic growth outlook
is dimming.
Fundamental
Headlines
US
economic news was mixed: weekly jobless claims rose but less than expected and
growth in July retail chain store sales were disappointing. More important,
perhaps, the Atlanta Fed released its third quarter GDP growth estimate of 1%
(short):
Overseas, German
June industrial orders were strong; and the Bank of England left key rates
unchanged, expressing concern over dropping commodity prices as the main
reason.
***overnight,
June German industrial production fell; and in China, an
outside economist estimated that the government has spent $1.3 trillion via
bailouts and stimulus.
Little
else held investor/media attention except for the republican presidential
candidate debate tonight and expectations for today’s nonfarm payroll number.
Bottom line: as I
noted yesterday, the flow of negative anecdotal data continues, including earnings
disappointments from some investor darlings.
This appears to be impacting individual components of the Averages
(bottom up) while the macro stats (top down) are at least acceptable. The net effect is that individual stock
performances are turning negative and cumulatively are starting to get
reflected in the Averages.
Most investors
agree that the stock market is and always has been a leading indicator; but it
is not the result of blind luck or psychic power. Often it is the accumulated effects of all the
anecdotal bits of data playing on individual companies or industries that, if
sufficient in volume, will ultimately show up in the indices. The operative words being, ‘if sufficient in
volume’. Unfortunately, we have no way
of judging that except through the pin action of the Averages. Hence, I think
that the technical picture right now is very important in determining what is
happening deep in the economy as well as where these developments will take the
Market.
Of course there
are times that the macro developments can drive all stock prices. And today
investors are increasing nervousness that the QEInfinity end game may be
drawing nigh and the results may not be good for stocks. So investors could potentially be looking at
a double whammy.
I continue to believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has been a disappointment or no longer fits your
investment criteria and to trim the holding of any stock that has doubled or
more in price.
The
great tragedy of monetary policy (long but today’s must read):
For
the bulls (medium):
And
three warnings for them (medium):
Economics
This Week’s Data
July
nonfarm payrolls came in up 215,000 versus expectations of 212,000 and the prior
revised reading of 231,000.
Other
Parsing
the employment numbers (short):
Emerging
market mayhem (medium and a must read):
More
on the veracity of Chinese data (medium):
Politics
Domestic
International War Against Radical
Islam
Schumer
opposes Iran deal (medium):
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