The Morning Call
9/14/17
The
Market
Technical
The indices
(DJIA 22158, S&P 2498) were up again yesterday. Volume fell and breadth remained strong. Both remain above their 100 and 200 day
moving averages and are in uptrends across all time frames. The S&P is above the resistance offered
by its former all-time high, though the Dow once again fell short.
The VIX (10.5) was
off fractionally, leaving it below the upper boundary of its short term
downtrend, below its 100 day moving average (it reverted to resistance two Friday’s
ago, then traded back above it last Tuesday, back below it on Thursday, back above
it on Friday and now is back below; so this MA is acting more like a magnet
than resistance or support. Nonetheless,
if it closes below it today. I will consider it resistance.), below its 200 day
moving average for a third day (if it remains there through the close today, it
will revert to resistance) and below the lower boundary of a developing very
short term uptrend. All that said, that major gap open on Monday is hanging out
there like a big matzo ball. The
question as to whether or not the VIX has bottomed clearly remains open.
The long
Treasury fell slightly again, 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 but below the resistance level marked
by its August high. Like the VIX, its
Monday gap opening hasn’t been closed.
The dollar was up,
but remained in short term and very short term downtrends and below its 100 and
200 day moving averages and in a series of six lower lows. It has closed the Monday opening gap.
GLD declined, but
ended above the lower boundaries of its short term and very short term uptrends
and above its 100 and 200 day moving averages (both support). It also has its Monday gap open still to be
closed.
Bottom line: long
term, the indices remain strong viz a viz their moving averages and uptrends
across all timeframes. Short term, the
Dow was again unable to close above the resistance level marked by its August
high, leaving it out of sync with the S&P.
In addition, all those Monday gap openings among the major indices still
need to be closed. Finally, 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
It
was another slow day for data: weekly mortgage and purchase applications were
up while August PPI came in below expectations.
I could interpret the latter as either good (low inflation) or bad (another
excuse for the Fed to do nothing) news.
Nothing overseas.
***overnight,
the Swiss National Bank (which also lowered its 2017 GDP growth estimate) and
the Bank of England left rates and bond buying programs unchanged. However, the BOE added that it would start a
normalization process ‘in coming months’.
Plus,
China reported that August retail sales, industrial production and fixed
investment were all below estimates.
The
major news item of the day was focus on tax reform. Trump has already made his public appeal and
he planning a tour giving series of speeches in support. Yesterday, Speaker Ryan announced that the
GOP congress would present its plan by September 25.
However,
Trump is not depending on GOP promises as gospel. He is employing his debt ceiling/Harvey
funding model---chatting up the dems. I
am sure the republicans are not happy about this; but it puts pressure on them
to come up with a Goldilocks compromise tax plan that garners the necessary GOP
votes to pass and avoids Trump doing the compromising with the dems.
Bottom line: at the risk
of beating a dead horse, if this political maneuvering can produce a
simplified, revenue neutral tax plan then, in my opinion, it will be a plus for
the long term secular economic growth of this country. If it is a budget buster, then I believe that
it will be negative. I would also add
that if either scenario occurs (as opposed to nothing happening), it is likely
to prompt the Fed to start unwinding QE.
So add that to a declining dollar and a flattening yield curve as
potential reasons for tightening monetary policy.
My
thought for the day: Joseph Schumpeter, an economist and political scientist,
wrote that an economic “recovery is sound only if it does come of itself. For
any revival which is merely due to artificial stimulus leaves part of the work
of depressions undone and adds, to an undigested remnant of maladjustments, new
maladjustment of its own…” These words cogently remind us that while government
stimulus – through low rates or other measures – can help in the near term,
ultimately it does not actually solve problems. It merely moves them around and
defers them. It is important for investors to realize that many still look to
the U.S. government to address the festering problems of high unemployment and
declining competitiveness (the true legacies of excessive debt expansion), but
they fail to realize that it was the government and the central bank that were
largely responsible for those problems in the first place.
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Economics
This Week’s Data
Weekly
jobless claims fell 14,000 versus expectations of a 4,000 increase.
August
CPI was up 0.4% versus forecasts of up 0.3%; ex food and energy, it was up
0.2%, in line
Other
Politics
Domestic
International War Against Radical
Islam
Pentagon
falsifying documents on weapons shipments to Syria (medium):
North
Korea resumes the saber rattling (medium):
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