Monday, August 5, 2019

Monday Morning Chartology

The Morning Call


The Market

The S&P had a rough week.  Still it remains in uptrends across all timeframes,  above both MA’s and closed the June 1st gap up open.  However, it finished below its former all-time high and is bearing down on its 100 DMA and the lower boundary of its very short term uptrend.  It needs to hold above those support levels to avoid raising the possibility that the move above the all-time high was a false break out.

 The long bond continues to push to new twenty year highs.  If it closes today above the upper boundary of its short term trading range, it will reset all trends to up.  While the Fed’s rate cut this week certainly was a source of strength, long rates shouldn’t be at twenty year lows if the economy is doing as well as the accepted narrative postulates.

The dollar remains quite strong.  On Friday, it reset the long term trend to up.  In addition, it is in a short term uptrend and above both MA’s.  That is hardly the pin action one would expect in a lower rate environment.

Gold had a roller coaster week.  While it made a five year high, the volatility led to the voiding of its very short term uptrend.  That could be a negative; but I will wait to make the judgment.  In the meantime, it remains above both MA’s and in short and intermediate term uptrends---which is not typical when the dollar is strong.

As is typical in a big down market, the VIX spiked, rising above both MA’s.  With it again trading in (reverse) sync with stocks, there is not a lot of informational value in this chart.

Friday in the charts.



            Week of 7/22: the economic data was upbeat with three positive primary indicators.  I rate the week a plus.  Overseas, the numbers were dreadful.
            Week of 7/29: the economic data, including the primary indicators, were negative. I rate the week a minus.  Score: in the last 198 weeks, sixty-four positive, ninety negative and forty-four neutral.  Overseas, the stats were excellent, especially out of the EU.

            Is Lagarde up to the task? (must read):

            There were also a two major headline events;
(1)   the FOMC met and lowered rates by 25 basis on Wednesday---pretty much as expected. 

Draghi leaves post instilling policy of more QE forever.

However, the narrative [as so often is the case] was confusing.  Investors read it as negative and stocks sold off solidly; they recovered their composure early Thursday, but then sold off again when---

(2)   following some soft mewing about progress in US/China trade talks early in the week, Trump said that he would impose an additional 10% tariff on those Chinese goods not already subject to them.  Whether he follows through or not is open to question.  At the risk of being cynical, I wonder if this move was prompted by what he considers a weak rate cut by the Fed---nothing says ‘rate cut’ like a plunge in the stock prices. But whatever he does, my thesis remains that the Chinese are not going to make any concessions until after the 2020 elections.

***overnight, China ups the ante, devaluing the yuan.

                 Another front in the global trade war.

                Bottom line: the Fed continues to demonstrate its ineptness, though I think that the rate cut will have little impact on the economy.  Its true power lies in moving the equity market; and I think that it will remain so until this so-dependency ceases to exist.  In my opinion, it will at some point.  I just don’t know when.

            The trade picture appears to be getting serious-er and serious-er.  The Chinese are intransigent and will likely remain so, at least until November 2020.  Which means that if Trump imposes the new tariffs and China responses in kind (which it now has), they will almost surely have a negative effect on the global economy.  If this gets out of hand on the downside, I will clearly have to revise my forecast down.  More important, if the economy weakens and the Fed eases further with zero results, the aforementioned co-dependency is at risk of unwinding.

    News on Stocks in Our Portfolios
Exxon Mobil (NYSE:XOM): Q2 GAAP EPS of $0.73 beats by $0.01.
Revenue of $69.09B (+3.1% Y/Y) beats by $4.62B.


   This Week’s Data



            The July Chinese Caixin services PMI came in at 51.5 versus estimates of 52.0; the composite PMI was 50.9 versus 50.3.

            The July German services PMI was 54.5 versus forecasts of 55.4; the composite PMI was 50.9 versus 51.4.

            The July EU services PMI was 53.2 versus consensus of 53.3; the composite PMI was 51.5, in line.

            The July UK services PMI was 51.4 versus expectations of 50.2; July auto sales were -4.1% versus -3.6%.


            Jim Grant on Modern Monetary Theory.

What I am reading today

            How to survive a mass shooting.

            Weathering a major bear market.

            The truth is………….

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