The Morning Call
10/9/18
The
Market
Technical
The Averages
(DJIA 26486, S&P 2884) recovered from a major early sell off to end mixed
on the day (Dow up, S&P down).
Volume was flat and breadth improved.
The most important technical point is that the S&P touched the lower
boundary of its very short term uptrend and bounced---a mild positive. They remain technically very strong. My
assumption is that they will challenge the upper boundaries of their long term
uptrends (29807, 3065).
The VIX rose
another 6 ½ %, a bigger move than I expected on a mixed day. It finished above its 100 DMA for a third
day, reverting to support and above its 200 DMA for second day (now resistance;
if it remains there through the close on Wednesday it will revert to support). As you know, it has not been following the
normal script of late and is now at the upper end of its short term trading
range---a negative for stocks.
The long bond (futures)
fell again (the cash market was closed).
It has ended below the lower boundary of its intermediate term trading
range for three days (if it remains there today, it will reset to a downtrend). This would clearly be a negative technical
development to say nothing of the implications fundamentally.
More
pain to come.
Higher
rates starting to impact larger economies.
The dollar was up,
continuing its march toward its August high.
I continue to believe that UUP will move higher as long as the dollar
funding problem persists.
GLD declined 1%,
something to be expected on an up dollar, down bond day. It remains an ugly chart.
Bottom line: the indices
remain technically strong. I continue to believe that they will challenge the
upper boundaries of their long term uptrends.
The terrible pin action in the long
bond appears to be signaling a huge change in bond investors economic/valuation
model. It has broken its long term
uptrend and now is about to do the same with its intermediate term trading
range. The dollar is confirming a
liquidity shortage. GLD continues to act
negative no matter what happens in stocks, bonds, oil, the dollar----I could go
on.
Monday
in the charts.
Fundamental
Headlines
Our
ruling class had yesterday off. So no
economic data and little other news.
However, rates continued to rise overseas and the dollar continued to
strengthen. I think neither a big plus
though clearly stocks don’t agree.
***overnight:
The
dollar funding problem now has Pakistan in its grips.
IMF
cuts global and US 2018 economic growth forecasts.
Bottom
line: at the moment, I believe that the upward trend in interest rates is the
most important variable on which to focus because it is signaling the end of
QE, which I believe will be a big negative for equities. As I noted above, equity investors are not
concerned and they may be right. But we
are nearing to point at which my thesis (QE was great for stocks so unwinding
it will be bad) will be proven correct or not.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
September small business optimism index was reported at 107.9 versus
expectations of 108.
International
Other
US
exports to China are down. However,
remember a big part of that decline is in soybeans and oil, which are fungible
products, i.e. if Brazil is selling more soybeans to China, then it is selling
less to someone, who will buy US soybeans.
Meanwhile, China is not
doing so well.
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