The Morning Call
10/10/18
The
Market
Technical
The Averages
(DJIA 26430, S&P 2880) were down modestly on the day. Volume was up; breadth negative. They remain technically strong. My assumption is that they will challenge
the upper boundaries of their long term uptrends (29807, 3065).
The VIX rose
another 1 ½ %, ending above its 100 DMA (now support) and its 200 DMA for a
third day (now resistance; if it remains there through the close today, 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
jumped 1%, but that was not sufficient to get even close to regaining the lower
boundary of its intermediate term trading range, thereby resetting to a
downtrend. This does not bode well
for the technical strength of TLT to say nothing of the implications
fundamentally.
The dollar was
down one cent, not really consistent with a strong day in bonds. I continue to believe that UUP will move
higher as long as the dollar funding problem persists.
China now having
dollar funding problems.
GLD rose
slightly on continuing high volume. The
most positive thing I can say is that it is attempting to build a base in what
has been a very painful decline; but it continues to trade below moving
averages and in a short term downtrend.
It remains an ugly chart.
Bottom line: the indices arer
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, having broken its long term uptrend and 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.
Tuesday
in the charts.
Fundamental
Headlines
One
minor datapoint was released yesterday: month to date retail chain store sales
grew more rapidly than in the prior week.
The
biggest headline yesterday was lower earnings guidance from PPG and Proctor
& Gamble. Declining earnings
guidance is a theme I have touched on previously. And more companies seem to be joining the
chorus.
Bottom line: remember
stock prices are determined by the P/E (discount rate) and earnings. If profit growth is slowing and future
projections are about to decline that is not going to help the earnings part of
the stock price equation.
The
other segment of the equation (P/E) is in even worse shape. (1) stocks are already generously valued (2)
interest rates are rising---which have a negative impact on P/E and (3) Fed
chair Powell’s recent hawkish comments suggest that rates are going still
higher. Indeed, as I have groused
continually, the Fed has already waited too long to tighten monetary policy and
the only way it will mute the impact of the coming inflationary wave brought on
by labor shortages, increasing tariffs and profligate government spending is to
keep the brakes on, i.e. continue to raise rates.
Keeping
recent stock performance in perspective.
The
next financial crisis is staring us in the face.
Rising
rates matter.
News on Stocks in Our Portfolios
Cummins (NYSE:CMI) has authorized the company to repurchase up to $2B in
shares of common stock upon completion of its 2016 $1B share repurchase program.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
Weekly
mortgage applications dropped 1.7% while purchase applications were down 1.0%.
September
PPI rose 0.2%, in line: ex food and energy, it was also up 0.2%, also in line.
International
Other
Surprising
truths about the trade deficit (must read):
Ron
Paul on NAFTA 2.0.
https://www.zerohedge.com/news/2018-10-09/natfa-20-ron-paul-asks-free-trade-or-more-central-planning
China
and the US at loggerheads on trade.
What
I am reading today
Ten commandments of
retirement.
More evidence of Chinese
manipulating chip hardware.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment