Tuesday, August 15, 2017

The Morning Call--Un blinks

The Morning Call

8/15/17

The Market
         
    Technical

The indices (DJIA 21993, S&P 2465) regained some of their lost euphoria yesterday.  However, volume was flat; breadth improved but not as much as the price move in the Averages would suggest.  Nonetheless, the upward momentum as defined by the Averages’ 100 and 200 day moving averages and uptrends across all timeframes remains intact.  At the moment, technically speaking, I see little to inhibit their challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. 

The VIX (12.3) plunged 20%, closing back below the upper boundary of its short term downtrend, negating last Thursday’s break.  However, it remained (1) above its 100 day moving average for the third day, reverting to support and (2) above its 200 day moving average for the third day [if remains above it at today’s close, it will revert to support].  That said, given the magnitude of yesterday’s decline, there is probably better than even odds that there is more downside to come.  I leave open the question as to whether the VIX has made some kind of bottom and the resetting of the intermediate term from trading range to downtrend was premature. 

The long Treasury declined slightly, but ended 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. 
           
The dollar inched higher, but still closed in a short term downtrend and below its 100 and 200 day moving averages.
           
 GLD was up fractionally, finishing above the lower boundary of its very short term uptrend and its 100 and 200 day moving averages (both support). 

Bottom line: while the indices bounced hard, volume, breadth and the pin action in bonds, the dollar and gold did not reflect the same degree of enthusiasm.  Maybe they will catch up or…………maybe they won’t.  Follow through.

            If you think last week’s decline was a disaster, you are in the wrong line of work (medium):

            Yesterday in charts (short):

            Broadening internal dispersions (medium):

    Fundamental

       Headlines

            There was no economic datapoints released.  But there will be a number of primary indicators reported this week---retail sales, housing starts and industrial production.  So it will an informative week, economically speaking.

            With respect to fiscal policy, Trump signed a China trade memorandum; the gist of which was to appoint someone to investigate whether or not China is violating trade agreements.  So this was a baby step, but a step nonetheless.  I have already opined that while I am concerned about an overly eager pursuit of adjusting our trade balance, I have been concerned for a long time about the Chinese theft of American intellectual property.  So some good can come of pressing the Chinese on this issue.

            On the monetary front, we got these somewhat hawkish comments from the normally dovish NY Fed head (medium):

            Overseas, the data was mixed:

(1) Japan reported second quarter GDP, business spending and private consumption above expectations,

(2) while China announced retail sales and industrial production below estimates,

(3) in addition, four Arab countries imposed sanctions on Qatar,

(4) the US/North Korean rhetoric cooled a bit which apparently brought some relief to Market participants.  However, I would point out that overvalued equities are still overvalued whether somebody lobs a missile or Un and Trump kiss and make up.  All the Korean/US confrontation represented was a potential spark.  It had nothing to do with the tender---which is a grossly overvalued Market. (medium):

            ***overnight:
           
            Bottom line: Trump continues to use his mouth create obstacles to successfully accomplish his healthcare and tax reforms as well as infrastructure spending.  In other words, the hopes of lifting the long term secular economic growth rate of this country is fading. 

Meanwhile, the Fed doesn’t know whether to s**t or go blind.  All its happy talk about how great the economy is, is belied by its own dovish policy.  The excesses of its QEInfinity policy will sooner or later have to accounted for.  When that occurs, I have no clue. 

Finally, equities are overvalued.  I am very happy with the cash in my Portfolios.

More on valuation (medium):

            Corporate buybacks shrinking (medium):

            The latest from Doug Kass (medium):

            My thought for the day: just because your portfolio is performing well, investing is still a battle---everyday.  Investors have to have a strict investment discipline that remains in place whether the investor is winning or losing---which will happen inevitably.  When he/she does so, the outcomes will take care of themselves.

       Investing for Survival
   
            You don’t have to play.

        
    News on Stocks in Our Portfolios
 
Home Depot (NYSE:HD): Q2 EPS of $2.25 beats by $0.04.
Revenue of $28.1B (+6.2% Y/Y) beats by $300M.


Economics

   This Week’s Data

            July retail sales rose 0.6% versus expectations of up 0.3%.

            The August NY Fed manufacturing index came in at 25.2 versus estimates of 9.8.

            July import prices increased 0.1%, in line; export prices were up 0.4% versus forecasts of up 0.2%.

   Other

            Quote of the day (short):

            Update on auto loans (medium);

Politics

  Domestic

  International War Against Radical Islam


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