The Morning Call
8/7/19
The
Market
Technical
The Averages (26029,
2881) bounced yesterday on weaker volume but better breadth. The S&P finished below the lower boundary
of its very short term uptrend (though
just barely), voiding that trend; however, the Dow ended back above its
comparable boundary, negating Monday’s break.
Both remained below their 100 DMA’s for a second day; if they remain there
through the close today, they will revert to resistance. In short, the aforementioned support levels
are still in the process of being challenged.
Today should provide clarity. Both
(1) ended above their 200 DMA and (2) had gap down opens on Monday which need to be
filled.
The VIX was down 18
%. It remained above its 100 DMA (now
support) and above its 200 DMA for a fourth day, reverting to support. Let’s see if these challenges are a harbinger
of similar behavior of stocks.
The long bond advanced
another ¾%. It is above both MA’s and in
uptrends across all timeframes. However,
it experienced a gap up open on Monday which needs to be closed.
The dollar was up
1/8% but remains in short and long term uptrends and above both MA’s. Like stocks, it had a gap down open which
needs to be filled. However, it did
close below the upper boundary of its former long term trading range for a
second day. The odds are rising that
Friday’s breakout could prove false.
Follow through.
Gold jumped 7/8%, ending
within very short term and short term uptrends and above both MA’s. It also experienced a gap up open which needs
to be closed.
Bottom line: even
though the Averages are in uptrends across all timeframes and have those gap up
opens that need to be closed, I am not sure that the worst is over. Typically, the end of a down leg in stock prices
would be marked by hard selloff at the opening followed by a rally. Just the opposite occurred. Plus, the long bond, dollar and gold are still
acting as safety trades. That said,
stocks could experience another leg down and still remain above their 200 DMA
and well out of range of the lower boundaries of their short term uptrends. So,
it will take a lot more downside before the Averages longer term upward
momentum will be in question.
Tuesday in the
charts.
Fundamental
Headlines
Yesterday’s stats
were upbeat: month to date retail chain store sales as well as June job
openings were mildly positive.
Overseas, it was a
bit of a mixed picture: June Japanese household spending and leading
economic indicators were below expectations while cash earnings were up above;
and the June German construction PMI was lower than anticipated while factory
orders were higher.
The
US/China trade skirmish remained center stage. The only additional development
being the overnight fix of the yuan was back within its historically normal range
which is a mild plus. Still, I don’t
think that there will be a resolution to this situation before November 2020
unless the Donald folds. As you know, I don’t
believe that
the Chinese are going to even think about negotiating until after that date and
may not ever.
Who suffers the
most in the US/China standoff?
US/China direct
investments plunge.
***overnight, the
Bank of China moved the yuan exchange down slightly. Plus, the central banks of New Zealand, India
and Thailand lowered their official interest rates on fears of global recession.
Bottom line: I
continue to believe that the US economy will grow. But there is an increasing risk that the
trade war will lessen that rate of growth. And history tells me that Fed policy, however
dovish, will do little to prevent or correct that problem.
However, I also
believe that the Fed policy is the single most important factor in Market
valuation and will remain so until investors lose faith in that
institution. My assumption remains that
the Fed will ease monetary policy if the Market declines in any meaningful way
and that will be a positive for equity prices.
The only question is Powell’s definition of ‘any meaningful way’.
The latest from Ed
Yardeni.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
The
June job opens (JOLTS) report showed 7.34 million openings versus estimates of
7.31 million.
Weekly mortgage applications rose 5.3% but purchase application fell 2.0%.
International
June
German industrial production fell1.5% versus expectations of -0.4%.
Other
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freight traffic is declining.
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for Survival’s website (http://investingforsurvival.com/home)
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