The Morning Call
8/8/16
The
Market
Technical
Investors
got jiggy with the Friday’s employment report, pushing the S&P (and the
NASDAQ composite) to new highs (but not the Dow). Volume wasn’t that impressive but breadth did
improve. I continue to believe that the
Averages are highly likely to challenge the upper boundaries of their long term
uptrends; but the odds are against it being successful.
You
can see the battle going on between the buyers and sellers of the TLT---a
series of higher lows and lower highs. The
only question is, who wins? The two
events playing on investors right now is (1) the major increase in QE by the
Bank of England on Thursday [arguing for lower rates] and (2) the strong
nonfarm payroll number on Friday [arguing for higher rates]. How this psychological standoff gets
resolved should tell us something about how the bond guys are looking at the
economy (continued weakness versus improvement).
GLD
did not have a good day on Friday. It
fell below the lower boundary of its very short term uptrend, having failed to
make a new high at a key Fibonacci level.
Without a quick recovery, the Aggressive Growth Portfolio will likely lighten
up on its GDX trading position.
The
VIX continues to gyrate above and below the lower boundary of its former short
term trading range. Friday’s plunge was
pretty decisive; but I am waiting another day or so before making a call on
direction---unless we get a big downside follow through today.
Fundamental
Headlines
The
US data last week were weighted slightly to the negative side: above estimates: June personal spending, the
July ADP private payrolls report, July nonfarm payrolls, the June PCE, July
vehicle sales, the July Markit manufacturing PMI and June factory orders; below
estimates: weekly mortgage and purchase applications, weekly jobless claims,
month to date retail chain store sales, July retail chain store sales, June
personal income, the July ISM manufacturing and nonmanufacturing indices, June
construction spending and the July trade deficit; in line with estimates: the
July Markit services PMI.
The primary
indicators were tilted to the plus column:
June personal spending (+), June factory orders (+), July nonfarm payrolls
(+), June personal income (-), June construction spending (-). However, I will note that while the June
factory was better than expected (-1.5% versus -1.8%), it was still down big
and worse than the May reading -1.2%.
Still in the interest of giving as much weight to recovery camp as
possible, I score this week as a wash.
The tally of the last 46 weeks: thirteen have been positive to upbeat, thirty
negative and three neutral. That leaves
our forecast unchanged: recession but with the warning light for change is flashing.
Update
on corporate earnings (medium):
Overseas,
the numbers couldn’t have been worse: the July Chinese Markit manufacturing and
nonmanufacturing indices, the July EU Markit manufacturing and nonmanufacturing
indices, the July UK Markit manufacturing and nonmanufacturing indices plus
construction spending, June German factory orders, June Italian industrial
production and the Japanese Markit manufacturing index were all disappointing.
***overnight,
July Chinese imports and exports declined more than expected; June German
industrial production rose 0.8%.
In
addition, the Bank of England lowered its key interest rates and really cranked
up the QE. Since, nothing economically material will
happen as a result of Brexit for at least two years, this move, I assume, is to
offset downbeat psychology. The question
is, will it? Certainly, Thursday’s pin
action suggests otherwise.
The
Fed’s failure (medium):
The
Bank of Japan’s failure (medium):
Bottom
line: stocks remain grossly overvalued and would be so even if our economic forecast
called for solid growth. I believe that
easy central bank monetary policy is the key to explaining this phenomenon; but
until investors recognize the damage QE, ZIRP have done (asset mispricing and
misallocation), the Market will remain overvalued. Investors should use this situation to take
some money off the table, either selling a portion of the positions in their winners
or all of their losers or both.
The
latest from Doug Kass (medium):
The
latest from Lance Roberts (medium):
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