The Morning Call
8/22/17
The
Market
Technical
The indices
(DJIA 21703, S&P 2428) managed a feeble rally yesterday. Volume was down; breadth was improved. The S&P finished below the lower boundary
of its short term uptrend for a second day; if it remains there through the end
of trading today, it will reset to a trading range. However, it did touch its 100 day moving
average intraday but bounced back above it.
The VIX (13.2) fell
another 7 ¾ %, holding on to its status as a crowded trade. It traded back below the upper boundary of
its short term downtrend, negating Thursday’s break. Nevertheless, it finished above its 100 and
200 day moving averages [both support]. I
leave open the questions as to whether the VIX made or is making some kind of
bottom extending back to late July and if I was premature resetting the
intermediate term from trading range to downtrend.
The long
Treasury rose, ending above its 100 and 200 day moving averages (both support),
the lower boundaries of its short term trading range and its long term uptrend
and has now made a third short term higher high. That is a lot of support.
The dollar declined,
closing in a short term downtrend, below its 100 and 200 day moving averages
and is again approaching the lower boundary of its short term trading range.
GLD moved up, finishing above the lower
boundary of its very short term uptrend, its 100 and 200 day moving averages
(both support) and is again a short hair away from the upper boundary of its
short term trading range.
Bottom line: the
indices basically marched in place yesterday.
The S&P remained below the lower boundary of its short term uptrend,
but just barely. So I see no information
in its trading yesterday. Plus, I remind
you that the Dow is a long way from a similar break. So at the moment, the assumption has to be
that the Averages are just experiencing a hiccup.
Fundamental
Headlines
One
US datapoint was released yesterday and it did not make good reading: the July
Chicago national activity index was a real bummer. No stats from overseas.
Most
of the Market’s focus dwelled on the eclipse; so there is little to comment
on. However, there are a number of potentially
newsworthy events this week: the speech by the Donald last night on Afghanistan,
NAFTA negotiations and the Jackson Hole meeting in which both Draghi and Yellen
will speak.
***overnight,
August German investor confidence fell for the third straight month; the US and
South Korea began negotiations of revising their free trade agreement.
Bottom
line: the economy is struggling to keep its head above water while equity
prices are at or near historical high valuations. Sooner or later, I think that
divergence will get resolved; and even if the economy improves, I don’t believe
that it would be enough to justify current stock values.
Our
inner investing world doesn’t reflect reality (medium):
https://www.bloomberg.com/view/articles/2017-08-21/our-inner-investing-world-doesn-t-reflect-reality
My
thought for the day: in the investment process, volatility is associated with
risk; much attention is given to it and ways to mitigate it. One of my problems with this approach is the way
that it is measured; that is, it is always assumed to be a constant
irrespective of the level of prices. In
other words, the volatility measure (level of risk) assigned to a stock is the
same whether its price is near historical highs or its historical lows. I think that is nonsense. In fact, one of the underlying precepts of my
Buy/Sell Discipline is grounded on taking advantage of volatility, i.e. only
buying a stock when it is near its historical low valuation and selling half
when it is near its historical high valuation.
In short, I believe volatility is a great measure of opportunity not
risk.
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