The Morning Call
7/9/19
The
Market
Technical
The Averages (26806,
2975) drifted lower yesterday, but remain above both MA’s and in uptrends
across all time frames. While volume was
up, it is anemic; breadth was weak. Still
momentum is to the upside; so, my assumption is that they will challenge the
upper boundary of their long term uptrends (29947, 3191). Nevertheless, there
are some negative: (1) short term, last Friday’s gap up opens need to be closed
and (2) long term, all the other non-stock indices are pointing to a need for
safety which is contrary to the current pin action in stocks.
The VIX was up 5
1/8%, but remained below both MA’s and in a very short term downtrend. So, impetus is lower. However, as I noted yesterday, it is near its
historic low, suggesting limited additional downside.
The long bond rose
1/8 % but couldn’t breach the upper boundary of its short term trading range
(seventeen cents away). Importantly, a
successful challenge will reset its long term trend to up. Nonetheless, it is above both MA’s and in a very
short term uptrend. In addition, it had
a gap down open on Friday which needs to be filled---which if it happens, would
start another challenge of the upper boundary of the short term trading
range. It continues to act as a safety trade.
The dollar advanced
1/8%, ending above both MA’s and in a short term uptrend. However, it made a gap up open on Friday
which needs to be closed. I still
believe that its pin action reflects its role as a safety trade.
GLD fell 5/8% though
it remains in a strong uptrend. Still,
it has made one gap up and one gap down opens and those need to be dealt
with. That said, it continues to act as
a safety trade.
Bottom line: despite
being overbought and the need to fill gap up opens from the prior week, the
Averages appear on their way to challenging the upper boundaries of their long
term uptrends.
It is remains disconcerting that volume is low (versus
high volume in bonds, the dollar and gold which are pointing to recession/or
the need for a safety trade), breadth is weakening, other equity indices have
failed to confirm the breakout of the Dow/S&P and the VIX has been acting unconventionally for the last
couple of weeks.
Monday in the charts.
https://www.zerohedge.com/news/2019-07-08/idowngrade-sparks-stock-selling-dollar-gold-bonds-flatline
Fundamental
Headlines
Only one stat reported
yesterday: May consumer credit continued to grow---not what you want when total
credit is near all-time highs.
Overseas,
May Japanese machine tool orders and June bank lending and economic sentiment
were below forecasts as was May German industrial production.
Update on big four
economic indicators.
It was a quiet day
otherwise. So, I include articles on my
favorite subjects:
Goldman admits
that the Fed has lost control.
Trump’s latest
nominee to the Fed and the realization of a liquidity trap.
Lagarde and the
ECB’s monetary policy.
Another study on
how a high debt to GDP ratio can inhibit long term secular economic growth.
Bottom
line: the economic data continues
to deteriorate---which is starting to sound like a broken record. While I don’t expect any kind of 2009 like
decline, any slowdown will likely have a
negative impact on corporate profits. And
that would make current valuations even more extreme.
Of course, that means nothing given
the Market/Fed co-dependency. And we will
get a snoot full of Fed news this week with Powell’s speech today, his testimony
before congress on Wednesday and Thursday and the release of the minutes of latest
FOMC meeting. As long as the narrative
remains dovish, stocks are likely to maintain an upward trajectory.
Buy all things.
News on Stocks in Our Portfolios
Revenue of $16.45B (+2.2%
Y/Y) in-line.
Economics
This Week’s Data
US
May
consumer credit expanded $17.0 billion versus expectations of $16.7 billion.
https://www.zerohedge.com/news/2019-07-08/consumer-credit-hits-all-time-high-credit-card-debt-surges
The June small business
optimism index was reported at 103.3 versus consensus of 105.0.
International
Other
June
heavy truck sales at all-time high.
Another
look on the bright side from my favorite optimist.
Economic
orthodoxy is failing.
How
economic data works.
The
problem with Keynesianism.
https://www.advisorperspectives.com/commentaries/2019/07/05/ray-dalio-john-mauldin-discussion-part-5
What
I am reading today
What blows a hole in your
budget.
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