The Morning Call
9/13/18
The
Market
Technical
The Averages
(DJIA 25998, S&P 2888) had a modestly up day on higher volume but mixed
breadth. 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
again, ending its 200 DMA (now resistance) and back below its 100 DMA for a
second day (now support; if it remains there through the close on today, it
will revert to resistance). After making
an attempt to trade into the upper values of its short term trading range, it
now appears to be heading for the lower level of this range. That generally supports higher equity prices.
TLT rallied
after a rough Tuesday, but still finished below its 200 DMA (now resistance), its
100 DMA for a second day (now support; if it remains there through the close today,
it will revert to resistance), the lower boundary of its long term uptrend for
a second day (if it remains there through the close next Monday, it will reset
to a trading range) and, as a result, outside that pennant formation (making it
the sixth such occurrence this year0.
Clearly, TLT is at a potentially critical level. All I can do is wait for follow through.
The dollar was down
fractionally, but remains technically strong.
That is not likely to change as long as dollar funding problems continue
in the emerging markets.
GLD was up almost a point on
big volume. One trading day is
meaningless in the scheme of things.
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. That said, bond crowd is still vacillating
over the long term direction of interest rates; and I have no idea what it will
decide.
Yesterday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were mixed---weekly mortgage applications were down but purchase
applications were up---to confusing---August PPI was down. Certainly not what I expected; certainly not
in line with the Fed Beige Book account (see below); and certainly not in line
with the rhetoric from various Fed members who have been advocating more rate
hikes.
In
addition, the Fed released its latest Beige Book. Summarizing the narrative: the economy
continues to grow, the labor market is tight, inflation is rising and everyone
is worried about trade.
The rally and Fed policy
(medium):
***overnight, across the
pond,
(1)
the Bank of England left rates unchanged,
(2)
the ECB left rates unchanged and reiterated that it [a]
would likely leave them so until mid-2019 but [b] would continue to reduce net
additions to its balance sheet through the end of December 2018 at which point
they would end. The Market appears happy
with this announcement. However, I point
out that misallocation of assets is a function not of interest rates but of
liquidity. If the ECB continues to reduce
its balance sheet is almost reducing the liquidity available.
On
the trade front, the US apparently is reaching out to China following its more
subdued rhetoric. How serious are
we/they? (short):
The
emerging market nightmare continues.
Here are the most vulnerable economies (medium):
***overnight,
the Turkish central bank raised its interest rate from 17.75% to 24%.
Bottom line: the positive
response of the US to the Chinese is hopeful; but then hope was alive two weeks
ago when the Chinese expressed the desire to reopen negotiations---and look how
that ended. There were also hopeful
noises out of the Canadians suggesting a willingness to compromise on dairy
imports---a major sticking point in those trade talks.
A resolution of either would be a
plus for the economy. It would also be a positive for the dollar
funding problem (stronger global growth will help). Though an ever tightening Fed is likely a
negative; and, at this moment, tighter money is not a potential occurrence, it
is happening.
The bad news, in my opinion, is that
unwinding QE will cause more problems than just those associated with emerging
markets dollar funding. It will also
impact all the other areas of asset mispricing and misallocation. Not the least of which is the US stock
market. With the stocks discounting a
rosy future, I believe the risk/reward tradeoff weighs heavily on risk. Accordingly, I want to own some cash when
equities mean revert.
Today’s
look back; and the best so far (medium):
Are
the Markets on hold until the mid-term elections? (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
August
CPI was up 0.2% versus expectations of up 0.3%; ex food and energy, it was up
0.1% versus estimates of up 0.2%.
Weekly
jobless claims fell 1,000 versus forecasts of a 7,000 increase.
International
Other
Trends
in household spending (short):
What
I am reading today
What
happened to the lost colony on Roanoke Island? (medium):
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