The Morning Call
9/4/18
The
Market
Technical
There is really not much
to add to my last comment. The S&P
is in a strong uptrend, supported by all three timeframes and both moving
averages. Having firmly traded above its
prior high, the assumption has to be that the S&P will challenge the upper
boundary of its long term uptrend (3065).
The only potential negative is the gap up on its move above its former
high. Traditionally, a gap is closed.
The long bond remains
stuck in the ever narrowing pennant formation marked by the upper boundary of
its short term downtrend and the lower boundary of its long term uptrend. For the last three weeks, it has traded above
both its 100 and 200 DMAs, suggesting that the buyers are a bit stronger than
the sellers. Nonetheless, what really
matters, technically, is which way it breaks out of this pattern. Historically, the negating of such a formation
in one direction has been followed by a continuing move in that direction.
The dollar has sold off, negating
its very short term uptrend. However, so
far it still made a higher low, meaning it has a lot of strength
(buyers)---contributing to the continuing global dollar funding problem. Last week the Argentine peso and the Turkish
lira were joined by the Indonesian rupiah in a major weakening (medium):
More:
And
still more (must read):
GLD has managed a very weak
rally. Notice that the last high was
lower than the previous high which speaks to that weakness. In short, this continues to be an ugly chart.
The VIX hasn’t really done
much over the last couple of weeks. It
did unsuccessfully challenge its 100 DMA twice which points to continuing
positive price movement in stocks.
Friday in the charts.
Fundamental
Headlines
The
week of 8/13/18, the economic data was mixed as were the primary indicators.
The
week of 8/20/18, the economic data was overwhelmingly negative including the
primary indicators. The two major
headlines of the week were (1) the fizzling of the US/China talks, which I
hadn’t expected much of anyway and (2) the Powell Jackson Hole speech which the
Market took as dovish---the economy is awesome, so a gradualist approach to
monetary policy is appropriate.
More
(medium):
Meanwhile,
it appears that the Japanese are inching further into ‘tapering’ territory
(medium):
The
week of 8/27/18 the numbers were a plus.
The big headline was the US/Mexico trade agreement---signs that the ‘art
of the deal’ may be working. Most
important, if there is follow through with Canada, the EU and China, there will
most definitely be a positive impact on the long term secular growth rate of
the US economy.
Speaking of which, as of
Friday, the US and Canada have not reached an agreement.
Trump rejects EU offer to
eliminate all tariffs on autos (medium):
And moves forward with
tariffs on Chinese goods (medium):
Score: in the
last 151 weeks, fifty-one were positive, seventy negative and thirty mixed.
Bottom line: the economy continues to
grow, though initial estimates of third quarter growth are below 2Q
results. At the risk of repeating
myself, I believe that the economy is in an uptrend; I just believe that second
quarter growth was a temporary phenomenon related to the tax cuts and that the
economy is not on some new upward trajectory.
That said, if Trump can repeat his trade
success with Mexico in Canada, the EU and China, it would add meaningfully to
the long term secular growth rate of the economy.
Finally, the central banks are
tapering. Not aggressively so, but
tapering nonetheless---meaning all that excess liquidity that led to the
mispricing and misallocation of assets is being withdrawn which I believe will
ultimately lead to the correction in pricing and allocation. We can already see it in the dollar funding
problems being experienced by several emerging market economies. I don’t know when the end of QE will start to
impact the US; but as long as tapering continues that time gets closer. Again at the risk of repeating myself, I believe
that the effect will be much more pronounced on the Market (asset pricing) than
on the economy,
The latest from
David Stockman (medium):
News on Stocks in Our Portfolios
Coke
makes $5 billion bid for coffee company (medium):
Economics
This Week’s Data
US
International
Other
Post
tariff agriculture prices (short):
July
real disposable income (medium):
The
latest third quarter GDP forecasts (short):
What
I am reading today
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