Tuesday, August 1, 2017

The Morning Call--Market schizophrenia

The Morning Call

8/1/17

The Market
         
    Technical

The indices (DJIA 21891, S&P 2470) had another mixed day (Dow up, S&P down).  Volume rose; breadth improved.  The upward momentum as defined by their 100 and 200 day moving averages and uptrends across all timeframes remains intact.  At the moment, technically speaking, I see little, except for the VIX, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. 

And (short):

The VIX (10.3) was up another 2 %.  It finished above the former lower boundaries of both the intermediate and long term trading ranges for the third day.  To be sure, enough time has lapsed to confirm the break of both trends to the downside.  That said, given that we are talking about the VIX hitting an all-time low, there is the question of whether the last week’s decline was some kind of blow off bottom.  Follow through.

The long Treasury rose, but remained below the lower boundary of its very short term uptrend.  However, it is still above its 100 and 200 day moving averages (both support), the lower boundaries of its short term trading range and its long term uptrend.  That is a lot of support.  If TLT starts breaking those support levels, it would probably be a sign that the underlying psychology of bond investors is changing.

The dollar plunged below the lower boundary of its short term trading range for a second day; if it remains there through the close today, it will reset to a downtrend.  This is an ugly chart.

 GLD continues to rise, ending above its 100 and 200 day moving averages (both support) and the lower boundary of a new developing very short term uptrend. 

Bottom line: the indices continue their schizophrenic behavior (Dow up, S&P and NASDAQ down).  At the same time, TLT, UUP and GLD investors seemed to have reembrace the weak economy, low inflation/interest scenario.  I would think that this deviant pin action would create a little heartburn for equity investors but that has not been case so far.
           
    Fundamental

       Headlines

            Yesterday’s US economic data was positive overall: June pending home sales and the July Dallas Fed manufacturing index were well above estimates while the July Chicago PMI was below. 

Overseas, the July Chinese manufacturing and services PMI’s were below estimate---this after two weeks of relatively upbeat economic stats.  As you may recall, I had speculated the improving Chinese data might portend it being removed from the global ‘muddle through’ scenario.  It still might; but clearly, these numbers don’t support such a move.
           
            ***overnight, the July Chinese Caixin manufacturing PMI (different from the stat above) was better than expected; the July EU and UK manufacturing PMI’s were above forecasts.

Bottom line: with the house on summer break, the fiscal news flow will likely slowdown for the next month.   However, the White House remains in turmoil which keeps signs of instability in the headlines.  Plus, we are still in earnings season.  So we could see a lot more action in August than is normal.  Reinforcing that is the current inconsistent pin action among the equity indices and indicators of other major segments of the securities markets. 

In this uncertain atmosphere, I would be scaling out of my winners and all my losers.  Sell high, buy low.

            More on valuation (short):

            My thought for the day: too many of us strive for immediate gratification at the expense of our future prosperity.  I would argue the government has been operating on that mindset for far too long---as evidenced by the growing level of national debt and the budget deficit.  Unfortunately, those debts ultimately have to be paid back; and the larger they are, the more painful and difficult the repayment process.

       
       Investing for Survival
   
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    News on Stocks in Our Portfolios
 
Cummins (NYSE:CMI): Q2 EPS of $2.53 misses by $0.03.
Revenue of $5.08B (+12.1% Y/Y)

Economics

   This Week’s Data

            The July Chicago PMI was reported at 58.9 versus expectations of 61.0.

            June pending home sales rose 1.5% versus estimates of up 0.9%.

            The July Dallas Fed manufacturing index came in at 16.8 versus forecasts of 13.8.

                Month to date retail chain store sales grew faster than in the prior week.

            June personal income was flat versus projections of +0.4%; personal spending rose 0.1%, in line.

   Other

            More on auto loans (medium):

            The threat to oil (medium):

            What to expect out of Draghi (medium):

            More on the Fed’s mistaken reliance on the Phillips Curve (short):

Politics

  Domestic

Great piece on fixing healthcare (medium):

  International

            Germany reacts to US sanctions of Russia (medium):

            Stockman on the war in Syria (medium):


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