The Morning Call
8/29/17
The
Market
Technical
The indices
(DJIA 21808, S&P 2444) had a mixed day (S&P up, Dow down). Volume
was flat, remaining at a low level; breadth was mixed. The S&P remains in focus; yesterday, it (1)
closed below the lower boundary of its short term uptrend [that boundary is
rising faster than the stock price]; if it remains there through the close on
Wednesday, it will reset to a trading range, (2) continues to develop a very
short term downtrend and (3) also could potentially be forming a head and
shoulders pattern. To be clear, the
index is above its 100 and 200 day moving averages and, at the moment, in
uptrends across all timeframes. So the
aforementioned potential negatives are just that---potential negatives. Meanwhile, the Dow isn’t close to challenging
any support level.
The VIX (11.3) rose
fractionally, leaving it below the upper boundary of its short term downtrend
and its 100 day moving average (now support; if it remains there through the
close on today, it will revert to resistance).
However, it ended back above its 200 day moving average, negating Friday’s
break and finished above the lower boundary of a developing very short term
uptrend. I am left questioning whether
or not the VIX has bottomed.
The long
Treasury was off slightly, 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 got whacked
hard again, closing in a short term downtrend, below its 100 and 200 day moving
averages and below the lower boundary of its short term trading range---if it
remains there through the close on Wednesday, it will reset to a downtrend.
GLD was up again, on volume again, finishing above
the lower boundary of its very short term uptrend, above its 100 and 200 day
moving averages (both support) and above the upper boundary of its short term
trading range (if it remains there through the close on Wednesday, it will
reset to an uptrend).
Bottom line: the
S&P continues to struggle, technically speaking, over the short term. Whether or not this pin action turns into
something negative remains to be seen. In the meantime, long term its uptrend
remains intact supported by a less technically challenged DJIA.
TLT, GLD and UUP
continue to point to a weak/sluggish economy, lower inflation and soft interest
rates.
Fundamental
Headlines
The
economic releases yesterday were mixed to negative: July US exports and imports
fell, July retail and wholesale inventories came in below expectations but the
August Dallas Fed manufacturing index was stronger than estimated.
The
devastation on the Texas coast was the main headline yesterday. While the Market action was somewhat subdued, given
the magnitude of the storm, it is apt to have a noticeable impact September
economic numbers, oil/gasoline prices and some third quarter earnings reports. Whether that in turn effects stock prices
remains to be seen.
And:
Late in the day,
North Korea fired a missile that carried over the northern part of Japan---a
very provocative move that will likely determine today’s pin action. Perhaps more important will be how the US and
allies respond.
And:
Bottom line: the
economic news is not nearly as positive as the ruling class would have you
believe---and Hurricane Harvey’s effect will not help. The central bankers are threatening to
tighten monetary policy, which I doubt; but if they do start unwinding
QEInfinity, I don’t believe that will be a plus for stock prices. 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. And
now, the North Koreans are poking their finger in Trump’s eye. Of course, this could all end well, despite
the drama. It better because that is the
way stocks are priced.
The
latest from John Hussman (medium):
More
on valuations (medium):
My
thought for the day: the average investor has a major problem selling. To do so is admitting that he/she made a
buying error. Then if he/she does sell
and the stock bounces back, then he/she would have to admit to a second
mistake. I think that this has things
backward. If a stock is moving lower,
the worst outcome would be for it to continue to decline and a small loss turns
into a big loss. If the investor makes a
sale and the stock rebounds, there is no loss.
His/her portfolio doesn’t know that the stock is up. All it knows is that it took a small
loss. Further, no transaction whether a purchase
or a sale is irrevocable. There is no
rule that says an investor can’t buy back a stock at a price higher than the
prior sale. Surely the original reason(s)
for buying the stock incorporated a profit objective sufficiently high that the
real consequence will be achieving a smaller profit that would have otherwise
occurred. So the equation is risk taking
a major loss or risk making a smaller profit.
That is not an equation.
Investing for Survival
Are
individual bonds safer than bond funds?
News on Stocks in Our Portfolios
Revenue of C$6.89B (+3.8% Y/Y)
Bank of Nova Scotia (NYSE:BNS) declares CAD 0.79/share quarterly dividend, 3.9% increase from
prior dividend of CAD 0.76.
Economics
This Week’s Data
The
August Dallas Fed manufacturing index came in at 17.0 versus expectations of
15.7.
Month to date retail
chain store sales grew faster than in the prior week.
The
June Case Shiller home price index rose 0.1% versus projections of up 0.3%.
Other
This
is a good discussion of the consequences of a trade war with China. But the author admits the charges of theft of
intellectual property are valid. True
both sides may be hurt by a trade war, but the US is already being hurt. So do we stand and fight or run away?
(medium):
Here
is another good discussion; this one on the politics/economics of tax
reform. I am not sure how qualified the
author is to project the results on to stock prices. (medium):
Housing
bubble, part 2 (medium):
http://www.zerohedge.com/news/2017-08-28/housing-bubble-20-home-equity-loans-soar-highest-level-2008
Big
bank concentration and counterparty risk (medium and today’s must read):
Politics
Domestic
A second opinion
of Joe Arpaio (medium):
One man’s
experience in the Berkley riots (medium):
International War Against Radical
Islam
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