The Morning Call
8/16/18
The
Market
Technical
The Averages
(DJIA 25162, S&P 2918) faded again yesterday as currency issues returned to
center stage. Volume was up; breadth deteriorated. Nevertheless, they remain strong technically;
and as I noted previously, last Friday’s gap down will almost surely be
closed. On the other hand, the VIX spiked
back above its 200 DMA (now resistance; if it remains there through the close
next Monday, it will revert to support) and the Dow’s 100 DMA continues to sit right on
its 200 DMA. A cross to the downside
would be a negative signal.
TLT’s battle
with its long term uptrend’s lower boundary remains on hold as it has become a
safety trade while investors try to digest the turmoil in the currency
markets. The question remains, is the
Turkish/emerging markets crisis a short term problem (and the Market’s focus will
return to the earlier dispute over the long term direction of interest rates)
or is it a sign of more dollar funding problems for the global banking system
(in which case it will remain a safety trade)?
In the meantime, TLT continues to advance and is now above its 200 DMA (now
resistance; if it remains there through the close next Monday, it will revert
to support). The gap (pennant formation)
between the declining upper boundary of its short term downtrend and the lower boundary
of its long term uptrend continues to narrow; TLT is nearing the top of that
range. But this story isn’t over. Stay
tuned.
The dollar was unchanged but
remains very strong, likely reflecting its function as a safety trade. GLD continues to get hammered---I have to
wonder if this is the result of those countries with dollar funding problems
selling their gold reserves to raise money to defend their currencies.
Bottom
line: currency problems in Turkey/emerging markets returned to center
stage. This remains a very fluid
situation whose outcome is highly uncertain.
To be clear, it could go either way.
But until there is some clarity, most of the indicators that I follow
will likely continue to be effected by the need for safety. On a shorter term basis, the downside gap in
the Averages will likely be closed.
Yesterday in the charts.
Fundamental
Headlines
Yesterday’s
economic data was a bit confusing largely because the two primary indicators
included major revisions: (1) July industrial production was lower than
anticipated, but the June number was revised up, (2) July retail sales were
quite strong, but June’s reading was revised down. In addition, Q2 nonfarm productivity rose
while capacity utilization fell significantly but the first quarter figure was revised
equally so; and June business inventories were up slightly but sales were up
much more. The remaining datapoints were
mixed: weekly mortgage/purchase applications declined, the July housing market
index decreased while the August NY Fed manufacturing index was better than
estimates. In other words, a lot of
information, some of it somewhat confusing but none of it pointing to an
accelerating economy.
As
I noted above, Turkey/emerging markets currency problems returned as the center
of investor attention. As of the close,
the news isn’t getting any better
Turkey’s
economy on a collision course with reality (medium):
Turkey has more than a
currency problem (medium):
Hong Kong has a problem
(medium):
Contagion
spreads (short):
***overnight,
China announced that trade talks with the US would resume. Plus it barred banks from lending yuan
offshore. The two moves brought relief
to the yuan,
Bottom line: the issue
remains as to whether or not the current dollar funding shortage is or soon
will spread beyond a couple of small, poorly run countries. I am not smart enough to know the answer. But this is a potential problem that I have
been focusing on for months; and it will probably only get worse, the tighter
monetary policy becomes. That said, it
is way too soon to think ‘major crisis/major sell off’.
Second
quarter corporate results (medium and a must read):
Counterpoint
(also a must read):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
July
industrial production was up 0.1% versus expectations of up 0.3%; however, June
was revised from up 0.6% to +1.0%.
June
business inventories were up 0.1%, in line; but sales were up 0.3%.
The
August housing market index came in at 67 versus consensus of 68.
July housing starts
were up 0.8% versus estimates of up 7.0%; building permits were up 1.0% versus
forecasts of up 2.6%.
Weekly
jobless claims declined 2,000 versus projections of up 3,000.
The
Philadelphia Fed manufacturing index was 11.9 versus an anticipated 22.5.
International
Other
Freight
costs are on the rise (short):
China
has serious trade cards (medium):
China not happy with new US defense
budget (medium):
Reflections
on the small business optimism index (medium):
How close is QE4? (medium):
https://www.zerohedge.com/news/2018-08-15/why-one-bank-thinks-fed-has-no-choice-launch-qe4-next-year
What
I am reading today
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment