The Morning Call
8/28/15
The
Market
Technical
The indices
(DJIA 16654, S&P 1987) had another roller coaster day, but closing nicely
on the upside. The Dow ended [a] below
its 100 and 200 day moving averages, both of which represent resistance, [b] in
a short term downtrend {17044-17959}, [c] in an intermediate term trading range
{15842-18295}and [d] in a long term uptrend {5369-19175}.
The S&P
finished [a] below its 100 and 200 day moving averages, both of which represent
resistance, [b] below the upper boundary of a very short term downtrend, [c] in
a short term downtrend {2031-2087}, [d] within an intermediate term uptrend {1898-2661}
and [e] a long term uptrend {797-2145}.
Volume was down;
breadth was mixed. The VIX fell another 14%, finishing [a] above its 100 day
moving average, now support, [b] within a short term uptrend, [c] within an intermediate
term trading range {it remains well above the upper boundary of its former
intermediate term downtrend and [d] a long term trading range.
Update on margin debt
(medium):
The long
Treasury was up, ending [a] above its 100 day moving average, now support, [b] within
short and intermediate term trading ranges but [c] below the lower boundary of
a very short term uptrend, negating that trend.
GLD rose, remaining
below its 100 day moving average and within short, intermediate and long term downtrends
and below the lower boundary of its very short term uptrend for the second day
meaning that the challenge of this trend has been successful.
Oil was up 11%, but
still finished below its 100 day moving average and within short, intermediate and
long term downtrends (see below).
The dollar also
rose, but closed below its 100 day moving average, now resistance, and within
short and intermediate term trading ranges.
Bottom line: the
indices followed through to the upside yesterday but not without a mid-day
hiccup. However, this bounce has done
nothing to undo the technical damage done earlier. True, it rendered the challenges to the DJIA
intermediate term trading range and the S&P intermediate term uptrend
void. However, until there is some test
of this very short term uptrend, we can’t really say a bottom has been
made. Also as I mentioned yesterday the
VIX is in no way suggesting that the worst is over. Still my ultimate conclusion remains that the
volatility has been so extreme it is almost impossible to make any meaningful
comment on the Market’s direction.
The long
Treasury continues to challenge the notion that there will be no Fed rate hike
and no recession. However, as I also
noted yesterday, there are short term outside factors, only tangentially related
to the US economy, driving Treasury bonds down (yields up)---that being selling
of Treasury securities by China and other emerging markets attempting to defend
their currencies that in turn has deflationary/recessionary implications for their
economies.
I
hadn’t thought about this, the Chinese liquidation of the US Treasuries in its
reserves puts pressure on the carry trade (which as you know has been a big
concern of mine) which leads to more liquidation. This also has the effect of unwinding QE. (today’s
must read):
Fundamental
Headlines
Yesterday,
there was one big positive economic number reported: revised second quarter GDP. The rest not so much: revised second quarter corporate
profits were below the prior reading, weekly jobless fell less than expected,
pending home sales rose less than anticipated and the Kansas City Fed
manufacturing index was very disappointing.
Keep the yellow light flashing.
GDP
per capita tells a different story (medium):
Like
Wednesday, we received another upbeat anecdotal incident---and oddly enough, it
too came out of the energy complex. In
this case, oil prices skyrocketed (where o where are the lower oil prices are
an unmitigated positive crowd?). That is
a plus because as I have been pointing out there are number of countries where
oil is a major source of income and there are a lot of highly leverage
companies that are dependent on higher oil prices to service debt. Hence, if a bottom in oil prices has been
seen, then there is likely a large number of potential negative exogenous
events (bankruptcy, loan default) that now may not occur. To be clear, I am not suggesting that the
lows in oil prices have been seen. But
the bounce in prices, for whatever reason, did assuage fears about a potential
major negative event.
Overseas,
the Chinese government stepped up its full frontal assault on its declining
currency and stock market, aggressively defending the yuan, cowering ‘evil’
short sellers and pouring money into institutions that, in turn, bought
stocks. So the battle continues between
the Chinese ruling class and the free market; although it is not clear at all
who is going to win.
***overnight,
the Chinese stock and currency markets rallied on rumors of more intervention;
Japan reported 0% inflation, declining household spending and a tight job
market; Vietnam experienced a failed bond auction.
Bottom line: the current rally may be a relief to all those
who are up to their snoot in stocks; but it is only widening back out the gap
between prices and values. Nothing has
occurred to warrant any optimism on that count; although clearly the QEInfinity
crowd is tickled pink with the possible delay in a Fed Funds rate hike.
I don’t believe
that the ‘all clear’ whistle has been blown; so I remain patient and skeptical. This rally
may be one last chance to Sell your losers or a portion of your winners.
A bull on emerging markets---by and large I think
that he is right. I am just not off dead
center yet. (medium):
A
surprisingly cogent summary of where the economy/Market is today (medium):
Economics
This Week’s Data
The
August Kansas City Fed manufacturing index was reported at -9 versus expectations
of -4.
July personal income rose
0.4%, in line: personal spending was up 0.3%, versus forecast of up 0.4%.
Other
Where
is the US in the debt cycle? (short):
Politics
Domestic
The heavy hand
of Trump (short):
International War Against Radical
Islam
No comments:
Post a Comment