Tuesday, August 13, 2019

The Morning Call---Add Argentina to the list of trouble spots

The Morning Call


The Market

The Averages (25696, 2882) took another whipping yesterday on still lower volume and weak breadth.  The Dow closed below its 100 DMA (now support; if it remains there through the close on Wednesday, it will revert to resistance); and the S&P ended back below its 100 DMA (now resistance, voiding last Thursday move above this boundary), having see sawed above and below this boundary the last six trading days.  Both indices remained above their 200 DMA’s---which right now is their major support levels.

The VIX rose 17 ½ %, finishing above both MA’s (now support) and is building a short term uptrend.  That is a bit of negative for stocks.

The long bond soared 2%, remaining above both MA’s and in uptrends across all timeframes.  However, it still has last Monday’s gap up open which needs to be closed.

And from Jeffrey Snider.

The dollar was off two cents, ending in short and long term uptrends and above both MA’s.  It still has a gap down open which needs to be filled.  It continued to trade in a ten cent range just below the upper boundary of its former long term trading range for a sixth day---which  has elements of both good news (it is consolidating in a very tight price range) and bad news (it can’t get back above former long term trading range boundary). 
Gold was up 1%, resuming a very strong uptrend.  It ended within very short term and short term uptrends and above both MA’s.  However, it still has last Friday’s gap up open which needs to be closed.

            Bottom line: long term, the Averages are in uptrends across all timeframes; so, the assumption is that they will continue to advance.  However, they are in the process of again challenging their 100 DMA’s. If successful, it would suggest that the recent rally was just the necessary consolidation to close those gap downs, opening the way for another leg down in the indices.  That notion is reinforced by the pin action in the long bond, the dollar and gold which are all pointing at the need for a safety trade. But remember the lower boundary of their short term uptrends are much lower.  So, the indices could experience a big correction and still not break their upward momentum.

            Monday in the charts.



            One stat released yesterday: the July budget deficit was $120 billion; while in line, that is a monster number and is not a plus for the economy (i.e. the federal government usurping capital from the businesses and consumers).

Overseas, June Chinese vehicle sales declined but less than anticipated; and July loan growth was below expectations.

            Other headlines were more political in nature---more turmoil in Hong Kong and an election surprise in Argentina that tanked its currency.  I noted in last weekend’s Closing Bell, that the number of trouble spots around the world was growing, many of which could adversely impact an already stumbling global economy.  Add Argentina to the list.

            Bottom line: while the US/China trade dispute and an uncertain Fed monetary policy have dominated investor concerns of late, yesterday’s report on the July US budget deficit reminds us that an extraordinarily irresponsible fiscal policy is another major problem that will adversely impact the US economy and the Markets.  The government simply cannot keep sponging up a major portion of investable US capital without a negative effect on economic growth---remember the Reinhart/Rogoff study that demonstrated that a debt/GDP ratio over 90% inhibits growth (now at 106% in US).  This is especially relevant when the government should be running a surplus or, at least, not growing its debt. This is not a plus for corporate earnings growth and, hence, Market valuation.

Inflation showing up in all the wrong places.

            Is China a currency manipulator?

            Debt-end (must read):

            Foreign stock markets are starting to look more attractive.

    News on Stocks in Our Portfolios


   This Week’s Data


            The July budget deficit equaled $120 billion, in line.

            July CPI was +0.3%, in line; core CPI was +0.3% versus +0.2%.

            Month to date retail chain store sales were slower than in the prior week.


            July Japanese PPI was 0.0% versus expectations of +0.1%; July machine tool orders fell 33% versus -32%.

            July German CPI was 0.5%, in line; PPI was -0.3% versus +0.2%.

            May UK jobs grew by 115,000 versus estimates of 65,000; Q2 productivity fell 0.2%, in line.

            August EU economic sentiment came in at -43.6 versus consensus of -21.7.


            July LA port traffic down YoY.

            July rail carloads down YoY.

            The invention of money.

            What happens as societies become richer.

            An updated look at Brexit.

What I am reading today


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