The Morning Call
9/8/17
The
Market
Technical
The indices’
(DJIA 21784, S&P 2465) performance was mixed yesterday with the Dow down
and the S&P flat. Volume rose; breadth
mixed. Both remain above their 100 and
200 day moving averages and are in uptrends across all time frames. But both are still below the resistance
offered by their former all-time highs.
The VIX (11.6) fell
0.5%, leaving it below the upper boundary of its short term downtrend, slightly
below its 100 day moving average (it reverted to resistance on Friday, then
traded back above it Tuesday; so this MA is acting more like a magnet than
resistance or support), above its 200 day moving average and the lower boundary
of a developing very short term uptrend. The question as to whether or not the
VIX has bottomed clearly remains open.
The long
Treasury rebounded strongly on volume, finishing 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 back above the resistance level marked by
its August high.
The dollar was
slammed again, closing in a short term downtrend and below its 100 and 200 day
moving averages, in a series of six lower highs and below the lower boundary of
its short term trading range for the third day, resetting to a downtrend.
GLD was advanced 1%, ending above the lower
boundaries of its short term and very short term uptrends and above its 100 and
200 day moving averages (both support).
Bottom line: long
term, the indices remain strong viz a viz their moving averages and uptrends
across all timeframes. Short term, they
have moved sideways since early August.
That is not necessarily bad; after all, stocks can’t go up every day. Still, I am watching the indices’ August
highs as resistance and the lower boundaries of their short term uptrends as
support. A break in either one would
provide directional information.
The unambiguous performances
of TLT, GLD and UUP continue to point at a weakening economy. I continue to be uncomfortable with the
overall technical picture.
Fundamental
Headlines
Two
economic datapoints yesterday: weekly jobless claims soared while revised second
quarter productivity and unit labor costs were better than expected.
One number from
overseas: August German industrial output was disappointing.
In addition, the
ECB took a page from the Fed guide on communications issuing disjointed ‘on the
one hand, on the other hand’ statement, the bottom line of which (aside from
totally confusing the markets) was that it would leave rates and its bond
buying program unchanged. Of course,
confusion is essential because the EU has been the strongest segment of the
global economy and if the ECB isn’t going to normalize monetary policy when the
economy is going well, then when will it?
Whatever Draghi says, strengthening the euro and avoiding a Market hissy
fit are his top priorities even though neither Market valuation nor currency levels
are part of central banks’ monetary mandates.
Unfortunately, one of the side effects of currency manipulation is that
prompts a similar response from their trading partners.
As an aside, I have
long maintained a country’s currency value are like a stock’s value---it is the
Market’s judgement as the value of that country. So a strong currency reflects investors’
perception of the strength of a country.
Bottom line: yesterday
was less news packed than Wednesday but that is not to detract from the ECB’s
decision to leave monetary policy in QEInfinity mode. It would seem that there is no central bank
with the enough responsibility to wind down QE irrespective of its particular country’s
economic performance. Of course, we know
why and it has nothing to do with economic performance. It is fear of unwinding the asset mispricing
and misallocation for which it is solely responsible. How can this possibly end if no central bank
takes the first step? (1) the Market
starts to flatten the yield which is now occurring, (2) the dollar keeps
plunging, (3) the composition of one of these central bank undergoes a change
in leadership that recognizes the need to correct past mistakes [think Volcker,
then think no Fischer and no Yellen].
More
on valuations.
My
thought for the day: most investors avoid the stock
in companies in industries that are under stress. Who can blame
them? The industry outlook is horrible; there can’t be anything good
here. I take a different view. I believe that some of the safest plays
you can make consist of buying financially strong names in weak sectors. These
companies are usually cheap in comparison to their earnings and to their book
values.
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International War Against Radical
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