The Morning Call
8/23/16
The
Market
Technical
The indices
(DJIA 18529, S&P 2182) drifted lower yesterday but that masked a lot of intraday
volatility. Volume was down; breadth weakened. The VIX rose 8%, finishing below its 100 day
moving average, within a short term downtrend and still close to the lower boundary
of its intermediate term trading range (support).
Market
schizophrenia increases (short):
The Dow ended
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17645-19381}, [c]
in an intermediate term uptrend {11333-24160} and [d] in a long term uptrend
{5541-19431}.
The S&P finished
[a] above its rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {2072-2311}, [d]
in an intermediate uptrend {1923-2525} and [e] in a long term uptrend {862-2400}.
The long
Treasury was up, closing above its 100 day moving average and well within very
short term, short term, intermediate term and long term uptrends. After breaking below the lower boundary of a pennant
formation last week, it finished above the pennant formation’s upper boundary yesterday. Given this erratic pattern, I think that pattern
has offered little directional value this time.
Falling demand
for US Treasuries---I discussed this in last week’s Closing Bell (short):
GLD fell, but finished
above its 100 day moving average and within short term and intermediate term
uptrends. However, GLD has gone nowhere
since late June. Plus I remain concerned
about its failure at its second try to surmount a key Fibonacci level, then its
negating a very short term uptrend.
Bottom line: for
the last couple of weeks, I have been pointing out that while the charts of the
Averages, TLT and GLD all point up, they all seem to be running out of steam. Yesterday’s pin action demonstrated more of
the same. Taken individually, each is
hardly worth the mention; but in aggregate, they warrant attention. So I continue to worry that something is
amiss. I recognize that this concern is
influenced by my negative take on current valuations; so I am not beating the
drums. Still be careful.
Stock
buybacks hit four year low (short):
Fundamental
Headlines
Only
one US datapoint yesterday: the July Chicago National Activity Index was up
strong but the June reading was revised down by more than the July number
rose. So the two month affect was a
wash. Nothing overseas.
***overnight,
the August EU flash composite and services PMI’s came in better than expected, while
the manufacturing PMI was worse; the August German flash composite PMI was also
less than expected; the August Japanese manufacturing PMI was slightly better
than estimates though it remains in negative territory.
The
Fed managed to hold on to the headlines.
Over the weekend, Fed vice chair Fischer gave some hawkish comments,
adding even more confusion to that which three other FOMC members and the most
recent FOMC minutes created last week.
Of course, we have the Fed chair herself speaking on Friday. If history repeats itself, she will offer up
more dovish pabulum which will provide solace to QE enthusiasts.
Too
late for the Fed to raise rates? (medium):
Fed study shows that an
additional $4 trillion in QE will be needed if the US goes into a recession
(medium):
We also received news that
the ECB now buying private debt placements, a step just short of helicopter
money (short):
Bottom line: we
are now in another cycle in which the Fed strives to achieve maximum confusion
in order to obfuscate the problems it has created and the fact that it has no
solution for correcting them. We will
get the coup de grace on Friday when Yellen babbles for an hour, hedges
everything that she says and ends up saying nothing. One day investors are going to get sick and
tired of this s**t. But until they do
sit back and enjoy the part of your portfolio that is invested; however,
consider taking some money off the table, either selling a portion of the
positions in your winners or all of your losers or both.
Bumping against max cash
position (medium):
The
latest from Jim Grant (medium):
The
latest from Jeff Gundlach (medium):
Bulls,
bears and the broken clock syndrome (medium):
Fundamentals
matter in valuation (medium):
My
thought for the day: Leverage works in both directions. Even if you don’t agree with me and intend on
staying fully invested, consider at least eliminating any margin debt.
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