The Morning Call
8/24/17
The
Market
Technical
The indices
(DJIA 21812, S&P 2444) failed to generate any follow through to Tuesday’s
big up day. Volume was down (again); breadth
was weaker. The S&P remained above
the lower boundary of its short term uptrend and its 100 and 200 day moving
averages. However, yesterday’s price
drop established a second lower high and sets up a very short term downtrend.
The VIX (12.2) advanced
8 %, but remained below the upper boundary of its short term downtrend. However, it recovered above its 100 day
moving average, negating Tuesday’s break. This roller coaster pin action leaves 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 was up, 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 and below its 100 and 200 day moving averages
and is challenging its short term trend of higher lows.
GLD rose, finishing above the lower boundary
of its very short term uptrend and its 100 and 200 day moving averages (both
support). Plus it is very close to the
upper boundary of its short trading range.
Bottom line: the
bulls couldn’t generate any upside follow through, though to be fair, the news
flow was not positive. I am now watching
how the S&P handles the lower boundary of its short term uptrend and the developing
very short term downtrend. For the
moment, the call is that it remains in uptrends across all timeframes and above
its 100 and 200 day moving averages; and DJIA is in sync. However, it may be losing upside momentum---‘may
be’ being the operative words. The TLT,
UUP and GLD continue to point to a weaker economy, low inflation and low
interest rates.
Fundamental
Headlines
The
US economic was mostly negative yesterday: weekly mortgage and purchase
applications were down, July housing starts (primary indicator) were awful, the
August Markit manufacturing flash PMI was below estimates while the services
PMI was above.
Overseas,
Europe continues to perform well, reporting the August Markit EU manufacturing,
services and composite PMI’s were all above expectations.
***overnight,
UK second quarter GDP rose 0.3%, in line, though household spending was the
weakest in three years.
None
of this mattered as investors tried to digest the latest round of Trump
bluster. At his Tuesday night campaign
rally, he stirred the pot on:
(1)
the ongoing NAFTA negotiations, saying that he doubted
that they would lead to a desired conclusion and if that occurred, he would
terminate the agreement. I have to
believe that this was all part of the Donald’s ‘art of the deal’ negotiating
strategy and hopefully is not nearly as dire as it sounds. Still it heightens uncertainty on a matter
that should prove a long term positive for the US economy,
(2)
the upcoming government budget legislation, indicating
that he would shut down the government is congress didn’t fund the southern
wall. Again, probably an exaggerated
threat to keep congress off balance. But
also again, it hardly instills confidence in business, consumer and investor
decision making processes.
The
Kansas City Fed’s Jackson Hole conference starts today and the globe is
anticipating speeches from Draghi and Yellen, which I suspect will be giant nothing
burgers. I continue to believe these
yahoos are paralyzed with fear over the potential impact of monetary tightening
on securities markets.
Mohamed El Erian
on Fed policy choices (medium and today’s must read):
Bottom line: the economic
news is not nearly as positive as the ruling class would have you believe. The central bankers are threatening to
tighten monetary policy, which I doubt.
But we will know more by the close Friday. So far, the only thing that the GOP dominated
congress can pass is gas. Trump continues
to persist in making the achievement of his own agenda more difficult by
insulting and threatening the very people he needs to accomplish it. Of course, this could all end, despite the
drama. It better because that is the way
stocks are priced.
More
on valuation (medium):
Investing for Survival
The
winning habits of gurus.
News on Stocks in Our Portfolios
Revenue of $2.21B (-3.9% Y/Y) misses by $30M.
Hormel Foods (NYSE:HRL) acquires Cidade do Sol for $104M.
The Brazil-based company offers more than 70 products in 15
categories including authentic meats for retail and foodservice markets under
the Ceratti brand.
"Strategic international growth is important to Hormel
Foods and South America has been of interest to us for several years,"
notes Hormel Foods CEO Jim Snee.
Revenue of $959.7M (+3.0% Y/Y) beats by $29.42M.
Economics
This Week’s Data
The
August Markit flash manufacturing PMI was 52.5 versus estimates of 53.2; the
services PMI was 56.9 versus forecasts of 54.8.
July
housing starts fell 9.3% versus consensus of being flat.
Weekly
jobless claims rose 2,000 versus expectations of up 5,000.
Other
Update
on corporate pension unfunded liabilities (short):
Politics
Domestic
International War Against Radical
Islam
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