The Morning Call
9/22/17
The
Market
Technical
Surprise,
surprise, the indices (DJIA 22359, S&P 2500) can actually decline. Volume fell; breadth weakened. Both remain above their 100 and 200 day
moving averages and are in uptrends across all time frames.
The VIX (9.6) fell
again (despite a down Market day), leaving it below the upper boundary of its
short term downtrend, below its 100 day moving average (now resistance) and
below its 200 day moving average (now resistance). It is now below the lower boundary of its
long term trading range, drawing near its former all-time low (8.8). The question as to whether or not the VIX has
bottomed is about to be answered.
The long
Treasury was down pennies, but still finished above its 100 and 200 day moving
averages (both support) and the lower boundaries of its short term trading
range and its long term uptrend. Conversely,
yields on shorter term maturities are rising.
That means that the yield curve is flattening. Historically, that has pointed to a weakening
in the economy---not the consensus view right now and certainly not in
line with the reasons the Fed gave for the start of its balance sheet
unwinding.
The dollar declined,
remaining in short term and very short term downtrends and below its 100 and
200 day moving averages and in a series of seven lower highs.
GLD continues to
fall, but still ended above its 100 and 200 day moving averages (both support)
and the lower boundary of a short term uptrend.
Bottom line:
long term, the indices remain strong viz a viz their moving averages and
uptrends across all timeframes. Short term, they are above the resistance level
marked by their August highs, meaning that there is no resistance between
current price levels and the upper boundaries of the Averages long term
uptrends.
On the other
hand, all those gap openings among the major indices still need to be
closed.
Finally, the
first two days of trading in the major indicators I track following the Fed
tightening suggests that its move was pretty much discounted---except for GLD
and TLT. My bet is that this state of
affairs isn’t going to last---the operative words being ‘my bet’.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
US economic stats were upbeat: weekly jobless claims fell versus expectations
of an increase; plus the September Philly Fed manufacturing index and the
August leading economic indicators were ahead estimates.
Overseas,
the Bank of Japan left monetary policy unchanged---not unexpected. Moody’s
downgraded China’s credit rating due to soaring debt growth. Pardon me for mentioning Reinhart/Rogoff
again, but if their thesis is correct, then the high growth rate of the Chinese
economy may be about to ratchet down.
***overnight,
the September EU manufacturing and services flash PMIs’ were above forecasts;
North Korea ups the ante, threatening to detonate a hydrogen bomb in the Pacific;
Kurdish referendum adding fuel to Middle East internecine battles.
Aside
from the expected debates on the meaning of the Fed’s change in policy and the
likely results, the big event of the day was another ramp up in sanctions
against North Korea. Unfortunately, the
more severe these sanctions get, the more they put the US in a position of confronting
Korea’s major sponsors---China and Russia.
The risks of a misstep with these guys has much larger consequences than
with the poorest, most backward nation on the planet.
Bottom
line: the economy is not as healthy as the Fed’s action would indicate; and the
bond market (i.e. the flattening yield curve) is telling us so. As you know, I have a lot more confidence in
the forward judgement of the bond market than the stock market. As long as bonds are telling me that my
forecast is correct, I am sticking with it.
More on investor
optimism (medium):
Investing for Survival
Make
your point and get out of the way.
News on Stocks in Our Portfolios
McDonald's (NYSE:MCD) declares $1.01/share quarterly dividend, 7.4% increase from
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Economics
This Week’s Data
August
leading economic indicators rose 0.4% versus expectations of +0.2%.
Other
Household
wealth hits record high (medium):
Politics
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