The Morning Call
10/8/18
The
Market
Technical
For the first
time in three months, I actually have something to say about the S&P other
than there is nothing to say. It appears
as if it might challenge the lower boundary of its very short term
uptrend. Of course, that is not the same
thing as saying it is challenging it; or if it did so successfully that would
necessarily be a negative. It remains,
after all, above both moving averages and well with in all three primary trends. For the moment, my assumption remains that it
will challenge the upper boundary of its long term uptrend. Only if it successfully challenges its 100
DMA moving average will I consider that some backing and filling may need to be
done before it resumes its advance on the upper boundary of its long term
uptrend.
I
don’t have to repeat that the long bond had a terrible week and is now close to
breaking a second major support level (lower boundary of its intermediate term
trading range). If that challenge is
successful then both the short and intermediate term trends will be down, the
long term will be in a trading range and the lower boundary of its long term
trading range will be next. That said,
that boundary is 12 points away from current levels---which would be a huge
move in bond land. So it is certainly
possible that the long bond could stabilize, build a base and then try for
higher prices.
The
dollar was off on Friday; but it had a very positive week. As long as the dollar funding problem
continues, I believe the trajectory of UUP is up.
Looking
at GLD’s chart, you would have no idea anything untoward is occurring in any of
the other markets. It remains in its own
little world, drifting sideways after a major shellacking and showing little
response to the moves in TLT, UUP and VIX.
The
VIX spiked last week, closing above its 100 DMA for the second day (if it
remains there through the close today, it will revert to support) and right on
its 200 DMA. While not a big plus for
stocks, the real negative will only come if it successfully challenges the upper
boundary of its short term trading range.
Fundamental
Headlines
Last week’s economic
data was upbeat as were the primary indicators.
So the call is easy---a plus. Score:
in the last 156 weeks, fifty-two were positive, seventy-one negative and thirty-three
mixed. It has been a while since the
stats rated positively; so I don’t read a lot into this viz a viz my
forecast. As I have mentioned
previously, third quarter GDP estimates are below Q2, fourth quarter is even
lower and 2019 forecasts are for more slowing---heading back to the previously
below average long term secular growth rate.
Two
developments occurred that will impact my and likely other’s economic models
were:
(1)
the new trade treaties with Mexico/Canada and South
Korea. I will only repeat my bottom line
from last week’s discussions: [a] the paucity
of change from the original NAFTA treaty suggests that, while a positive for
the long term secular growth rate of the economy, it may be only marginally so,
[b] removing the uncertainty of a NAFTA trade war will almost assuredly help
the economy on a cyclical basis as companies can now resume investment plans
that were put on hold.
That said, the more stories like this demonstrating the
ancillary benefits of the new NAFTA, the more positive this treaty becomes.
(2)
Fed chair Powell’s hawkish comments were regard to the
continuing tightening of monetary policy.
Again the bottom line: higher
rates and a shrinking monetary base [a] will only worsen the current dollar
funding problem, [b] make bonds more competitive with stocks on a total return
basis, [c] continue to move to price discovery, unwinding the gross
misallocation and mispricing of assets.
More fallout more rising US
interest rates.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
Other
Italy
and the EU still at odds.
What
I am reading today
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