The Morning Call
7/31/18
The
Market
Technical
The Averages
(DJIA 25306, S&P 2802) were off again---not surprising in that they were in
overbought territory. Volume was down;
breadth weak. However, the Dow continued
to trade above its 100 day moving average (now support), above its 200 day
moving average (now support), within a short term trading range but back below its
June high. The S&P ended above both
moving averages and in uptrends across all timeframes. The assumption remains that the indices are on
their way to challenging their all-time highs.
VIX rose another
9 ½% remaining below its 100 day moving average but right on its 200 day moving
average and at the top end of the narrow trading range near the lower boundary
of its short term trading range. But it
doesn’t seem to want to challenge that lower boundary.
The long
Treasury was down, finishing below its 200 DMA (now resistance), below its 100 DMA
(now support; if it remains there through the close on Wednesday, it will
revert to resistance) and right on the lower boundary of its long term
uptrend. Clearly, it continues to lose
momentum. A successful challenge of the long
term uptrend would have significant technical and fundamental import.
The
dollar was off, but still ended above both moving averages and in a short term
uptrend. Further indications of strength
are (1) its 100 DMA trading above its 200 DMA and (2) UUP has now made two
higher lows.
Gold
continued its dismal performance. It closed
below both moving averages (its 100 day moving average has now crossed below
its 200 day moving average---not a technical plus) and in a short term
downtrend. Its pin action suggests that
it will challenge the lower boundary of its intermediate term trading range
(roughly 10 points lower).
Bottom
line: it is not surprising that the
Averages are selling off from an overbought condition. And they remain quite strong technically
speaking. However, the carnage continues
in the tech sector which has been one of the sources of fuel for the current
bull market. If it continues to get
hammered, it is likely that there will be an impact on the Market as a whole. I
just don’t see investors revaluing their favorites and not revaluing other
stocks. Nonetheless, until the damage
becomes manifest, the technical assumption remains that the indices are going
to challenge their all-time highs.
More
concerning is the pin action in TLT. It
is on the verge of resetting a 20 year uptrend.
To be sure, nothing has occurred yet.
But if the current challenge is successful, there is only minor support
9 points lower with the first major support 30 points lower. In other words, if the technicals are
anticipating a fundamental move, we are could be looking at much bigger rise in
rates than is current consensus.
Certainly,
GLD is already pointing convincingly at higher interest rates and a stronger
dollar. The dollar is trying though it
may be waiting a lead from TLT.
Yesterday
in the charts.
Fundamental
Headlines
Yesterday’s
economic releases were upbeat: June pending home sales and the July Dallas Fed
manufacturing index were better than anticipated.
Not
much additional news, though this week will still be a busy one with three
central banks meeting (BOE, BOJ, the Fed), the last big week of earnings reports
and the resumption of trade talks between the US and Mexico.
Bottom line: yesterday’s
economic news notwithstanding, I believe that the current excitement about
future growth is misplaced. Remember I am
not talking about recession; just an economy struggling to grow. The primary reason for my skepticism is that
our ruling class keeps expanding the national deficit and debt at exactly time
they should be shrinking it. The burden
of servicing that debt will usurp the savings that would otherwise go to future
productivity enhancing investment.
In addition, until very
recently, investors have been assuming that QE would last forever or, at least,
until it started negatively impacting the Markets. The problem is that historically the Fed has
never, ever successfully transitioned from easy to normal monetary policy and one
of the result has been that Markets got hammered. This time around the order of magnitude of
its easing effort (QE) was so much larger than on any previous occasion, I assume
that the ‘hammering’ will be commensurate.
Dr.
Ed’s weekly fundamental indicator remains bullish (medium):
The
problem with ‘passive’ investing (medium):
News on Stocks in Our Portfolios
Revenue
of $14.01B (+23.7% Y/Y) misses by $80M.
Economics
This Week’s Data
US
June
pending home sales rose 0.9% versus estimates of +0.5%.
The
July Dallas Fed manufacturing index came in at 32.3 versus expectations of
32.0.
International
Other
Update
on the housing market (medium):
2019
defense budget includes a lot of arm twisting (medium):
Monetary
policy for the next recession (medium):
The
hangover in corporate debt (short):
What
I am reading today
How
to look at your home equity in retirement (medium):
Should retirees own their
home? (medium):
Real world versus book
knowledge (medium):
Mean reversion and the placebo
effect (medium):
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