The Morning Call
9/14/18
The
Market
Technical
The Averages
(DJIA 26145, S&P 2904) had a great day but on lower volume. However, breadth improved. They remain strong technically; and my
assumption is that they will challenge the upper boundaries of their long term
uptrends (29807, 3065).
The VIX was down
another 6%, ending below its 200 DMA (now resistance) and back below its 100
DMA for a third day (reverting to resistance).
After making an attempt to trade into the upper values of its short term
trading range, it is now heading for the lower level of this range. That generally supports higher equity
prices.
TLT rallied
weakly for a second day, but still finished below its 200 DMA (now resistance),
its 100 DMA for a third day (reverting to resistance), and the lower boundary
of its long term uptrend for a third day (if it remains there through the close
next Monday, it will reset to a trading range).
Clearly, TLT is at a potentially critical level. All I can do is wait for follow through---which
so far has not been promising.
The dollar was
down fractionally again, but remains technically strong---still closing above
the last lower higher low. Its pin
action is not likely to change as long as dollar funding problems continue in
the emerging markets.
GLD was down after a big one
day rally, having failed to trade above its last lower high. Gold continues to have the ugliest chart on
the block.
Bottom line: the indices
remain technically strong. I continue to believe that they will challenge the
upper boundaries of their long term uptrends.
The dollar will
likely remain strong until the dollar funding problems are resolved.
The pin action
in TLT is my main focus because if the long term uptrend breaks, pointing to
much higher rates, that will have implications in all the other Markets.
Yesterday
in the charts.
Fundamental
Headlines
Yesterday’s
data releases were upbeat: August CPI was lower than anticipated, weekly
jobless claims were below expectations but the August budget deficit was well
above estimates (confirming yesterday’s CBO revised forecast that the FY2018
deficit will surpass $1 trillion).
The
lead headlines for the day were the meetings of the Bank of England and ECB,
both of which left rates unchanged. The
ECB reiterated that it will continue to decrease its bond purchases (QE)
through the end of the year at which point it will cease them altogether.
Following
the official statement, Draghi gave one of those classic central bank commentaries,
(1) noting that the EU economy is solid [in spite of the lower growth
expectations presented in the official statement] and (2) went on to make so
many contradictory statements on inflation, I have no idea what he really
thinks.
While
the rate decisions got the most attention, I think that the ECB’s continuing
unwind of QE is the more important point.
After all the decline in global (dollar) liquidity is what is driving
the emerging market dollar funding problem.
While clearly it is a dollar issue; but it is also a liquidity issue (if
there are fewer euros being created, there is less of an opportunity to borrow
cheap euros to buy dollars).
Emphasizing
this point, the central bank of Turkey also met and raised its key interest
rate by over 600 basis points. That is
about as strong a statement as a central bank can make that it is having severe
liquidity problems (high interest rates attract investors).
***overnight,
the Russian central bank raised rates in the face of a depreciating currency
and rising inflation (medium,):
Bottom line: in my opinion, the
cessation of EU QE will contribute to emerging markets dollar funding
problems. It will also impact all the
other areas of asset mispricing and misallocation. Not the least of which is the US stock
market. With stocks are discounting a
rosy future (in spite of the lower PPI and CPI reports [which suggest slow to
no growth] and today’s retail sales number), I believe the risk/reward tradeoff
weighs heavily on risk. Accordingly, I
want to own some cash when equities mean revert.
The
latest from David Tepper (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
August US budget deficit rose to $214.1 billion versus expectations of $178.0
billion.
August
retail sales were up 0.1% versus consensus of up 0.4%; ex autos they were up
0.3% versus projections of up 0.5%.
August import prices declined 0.6%
versus an anticipated -0.1%; export prices were off 0.1% versus expectations of
+0.2%---an indication that US producers are eating some of the economic impact
of a stronger dollar.
International
August
Chinese retail sales rose 9% versus estimates of 8.8%; industrial production
was up 6.1%, in line; fixed asset investment increased 5.3% versus forecasts of
up 5.6%.
Other
The
distribution of income in the US (short):
This
article is reasonably balanced in poo pooing Trump’s claims that he and his
efforts are responsible for the current state of the economy. I do think that that not enough credit is
given to his deregulation policies and his trade efforts weren’t even
mentioned. (medium):
What
I am reading today
How to avoid scams that
target the elderly (medium):
The difference between Russia and
China (medium):
Should you buy a standby generator?
(medium):
Today’s lesson in public choice
theory (short):
How new ideas are perceived (medium
and a great article):
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for Survival’s website (http://investingforsurvival.com/home)
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Service.
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